Smarting from its bitcoin exchange traded fund (ETF) denial by the United States Securities and Exchange Commission (SEC), Van Eck is pushing back in a formal letter of protest. A public response published on the SEC’s site methodically addresses each concern the regulator used in its rejection: valuation, liquidity, custody, arbitrage, and manipulation.
Bitcoin EFT Rejected Firm Van Eck Protests Publically to SEC
In a letter to Dalia Blass, the SEC’s go-to on investment management and someone well familiar with the Bitcoin ETF quest prior to her tenure at the agency, Van Eck, one of the firms impacted by rejection, issued a public protest. It was written just prior to the latest SEC denial of the Winklevoss Bitcoin Trust.
Van Eck’s detailed response was recently published on the SEC’s website, and it pains in detail over issues often cited by agency leaders such as Ms. Blass, five in particular. “For the reasons stated above,” Van Eck concluded in the 13-page missive complete with graphs and charts, “we believe that our proposed ETF will operate consistent with the rules and requirements of the 1940 Act. Further, by offering investors exposure to bitcoin through a regulated investment product, we believe the proposed ETF will be consistent with the Commission’s mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”
Ms. Blass was appointed by Chair Jay Clayton, himself new to the job earlier that same year (2017), having been tapped by President Trump. Though with the agency during a previous stint, Ms. Blass re-emerged from the private sector.
In fact, she was counsel to the Winklevoss’ first failed ETF attempt at the hands of the SEC. Notice of her appointment in December caused at least one media outlet to dub her an “ETF specialist.” She would go on to have quite an impact on the current discussion, especially her Staff Letter: Engaging on Fund Innovation and Cryptocurrency-related Holdings of 18 January 2018, as it is the document Van Eck is addressing.
Valuation, Liquidity, Custody, Arbitrage, Manipulation
Van Eck takes on essentially five main issues in its response to the SEC. Regarding valuation, regulators really fear Bitcoin ETF prices will be screwy if, say, more forks of the digital asset continue. To that end, Van Eck explains, “Some rules that should be employed are using meaningful liquidity and infrastructure tests to assess forks and pricing issues. If prices are just displayed on a website but do not reflect sufficient volume, then those prices can be de-emphasized for valuation purposes. Forks that do not trade with sufficient volume or have adequate infrastructure (wallet or exchange support) can be excluded from indices that are meant to be investable.”
Liquidity is yet another worry for the SEC. Here, Van Eck relies on a steady increase in futures markets. The firm details, “We expect that the futures market will grow proportionally to our proposed ETF and that such growth will fuel additional interest by other investors, thereby adding additional liquidity. Additionally, since the launch of the U.S. bitcoin futures contracts, unregistered futures contracts have traded on Bitmex, a non-U.S. exchange, with a consistent volume of greater than $2 billion per day. Moreover, to the extent other futures-based bitcoin ETFs follow our proposed ETF into the market, we anticipate that such other ETFs would have a similar impact on the futures market, thus increasing liquidity in the market and benefiting fellow market participants.” […]