I’ve said before that BitCoin is the Dutch Tulips of investments. The blockchain approach to recordkeeping is an interesting use of decentralized computed power for recordkeeping, but BitCoin units are less interesting. The main users are less than scrupulous users looking for ways to avoid things like anti-money laundering rules.
Many bankers/traders see BitCoin as a way to make money. All of those transactions and lack of regulation seem ripe for profit-making.
One tactic has been to set up an ETF to track BitCoin prices. Much a like a gold ETF means you don’t need a safe and security guard for gold bars. A BitCoin ETF would allow you profit on runaway BitCoin prices without having to get involved with all of the technical stuff of BitCoin.
I should say, at least people are trying to set up a BitCoin ETF. Two requests have been denied recently. The decisions from the Securities and Exchange Commission state that they fail to “to prevent fraudulent and manipulative acts and practices” and fail “to protect investors and the public interest.” In an identical statement for the two rejections:
The Commission believes that, in order to meet this standard, an exchange that lists and trades shares of commodity-trust exchange-traded products (“ETPs”) must, in addition to other applicable requirements, satisfy two requirements that are dispositive in this matter. First, the exchange must have surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated.
One problem that surfaces is that is hard to pin the value of BitCoin. The Chinese exchanges for BitCoin have become a separate market from the US. Even in the US, there are different exchanges with different values. Each of the rejected ETF planned to use a different measure for the ETF value.
The linchpin in the SEC’s denial is the lack of regulation. The very thing that attracts user to BitCoin, the lack of government oversight, is the main reason the SEC rejects the ETFs.
For the commodity-based EFTs approved so far, there have been well-established, significant, regulated markets for trading futures on the underlying commodity. Those are gold, silver, platinum, palladium, and copper.
BitCoin is not to the SEC’s liking.
Sources:
- Order Disapproving a Proposed Rule Change, as Modified by Amendments No. 1 and 2, to BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, to List and Trade Shares Issued by the Winklevoss Bitcoin Trust
- NYSE Arca, Inc.; Order Disapproving a Proposed Rule Change, as Modified by Amendment No. 1, Relating to the Listing and Trading of Shares of the SolidX Bitcoin Trust under NYSE
- Is Bitcoin a Security?
- The SEC Says Be Wary of Bitcoin