The complexities of the debate around bitcoin and ETFs in light of the intervention last week from the SEC were tackled by another panel at the Inside ETFs 2018 conference today.
Among the companies which have had proposals for bitcoin ETFs refused by the SEC is Van Eck. Chief executive Jan Van Eck told the audience that the core of the issues addressed by the 31 questions from the financial watchdog was the fragmented and fractured nature of the bitcoin market.
"Most of the exchanges are completely unregulated," he said. "It's a completely free market. The SEC care about all of that. The market is so fragmented - and asking about the price is a fair question?
He added that he believed custody problems were solvable, citing that they have managed the situation with gold, but the market was not liquid enough as yet. "The underlying market is there, but it is completely unregulated and structurally flawed," he said.
Earlier this week, a legal expert speaking at Inside ETFs 2018 suggested the SEC letter constituted a substantial roadblock to the launch of a bitcoin ETF. (Link to: https://www.etfstream.com/news/2660_bitcoin-etfs-hit-sec-roadblock)
Jeremy Senderwicz, partner at law firm Dechert, suggested that many of the questions being posed on the valuation and volatility of bitcoin the proposed bitcoin ETF providers would struggle to answer.
The SEC letter published on Thursday last week came in response to the wave of proposed bitcoin ETFs that themselves followed on from the launch of bitcoin futures. The letter said that while the SEC was aware of the "potential benefits" from cryptocurrencies, it added that there were obvious concerns on transparency of information, trading and valuation.
Hunter Horsley, chief executive at Bitwise Asset Management, said the questions were important. "These things need to be addressed," he added.
Horsley noted that 2017 was a "watershed" year for cryptocurrencies and bitcoin in particular.
"The space garnered a lot of additional interest, including 84 bitcoin focused hedge funds," he said. "Below the fold, we moved form a world that was only bitcoin - say about 85/90 percent of the market - and we ended 2017 with bitcoin at 35 percent of the total market. A number of other assets grew meaningfully. 2017 was the year crypto became a tiny but meaningful asset class."
Horsley noted that a decent proxy for investor interest is sign-ups for the bitcoin and cryptocurrency brokerage Coinbase. "They are now at 15 million users and $1bn in revenue<" he said. "That is a demonstration of serious demand."
Van Eck mentioned that the interest was clearly not just from actual or putative investors. "One point I make is the promise of the technology is attracting not just investors but also a whole generation of developers and people into encryption technology," he said. "It is changing the way people thing about technology. None of that is visible right now. It's very early days; don't get fazed by people just chasing the price."
When asked why some of the current technology giants aren't already dominating the blockchain technology market, Horsley hinted at other issues that the SEC would face when it came to regulating a bitcoin ETF.
"A component of (blockchain) is that there is no central actor," he said. "It is unlikely any one coin would be viewed as being desirable is it was controlled by a central actor. And they wouldn't be able to take fees.
Matt Harris, managing director at Bain Capital Ventures, who moderated the panel pointed out that the whole point of blockchain is to get away from centralised applications and the market. "We can choose or not to believe in that future. But there is an instinct that people do not want to be under the thumb, whether it is the Federal government or Facebook."