Here’s why the SEC keeps rejecting spot Bitcoin ETF applications

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This is not the first time the US Securities and Exchange Commission (SEC) has rejected an offer to sell a product on the Bitcoin Exchange (ETP), but the efforts of various financial institutions continue. Cboe BZX Exchange’s latest attempt on January 25 to list the Fidelity Wise Origin Bitcoin Trust as a Bitcoin ETP also failed.

The SEC letter, issued on February 8, noted that the stock exchange did not assume the burden of proving that the fund was “intended to prevent fraud and manipulation” and “to protect investors and the public interest.”

While Bitcoin Spot ETP offers are not approved by the Securities and Exchange Commission (SEC) and these products are not available in the US market, they do exist in the European market. By examining the prices of ETPs traded on the European market, one can understand whether fraudulent and manipulative actions are possible.

To find out if the SEC’s concerns about fraud and manipulation are justified, this article will compare the historical prices of the three listed ETPs in Europe and the history of bitcoin spot prices across 18 exchanges to see if there are any significant price discrepancies. which can lead to market manipulation. .

Key issues with the Securities and Exchange Commission
From a technical point of view, the Securities and Exchange Commission has expressed two main concerns about the BZX Exchange offer:

(1) No data or analysis has been presented to support the argument that cross-platform arbitration helps keep global bitcoin prices flat, thus counteracting manipulation and eliminating any spread between markets. There is no indication of how exactly bitcoin prices match across different bitcoin trading venues, or how quickly price fluctuations are evened out.

(ii) Oslo Børs does not show that the proposed index calculation method will make the proposed ETP resistant to fraud or manipulation. In particular, the stock exchange did not evaluate the potential effect of platforms not included in the bitcoin platforms that make up the index of the price of bitcoin that was used to calculate the index.

To see if the above problems exist and if manipulation of ETPs listed on European markets is possible, compare the historical data (from Google Finance) for the next three ETPs listed on the SIX Swiss Exchange with the spot price of bitcoin on exchanges (data from CryptoWatch).

Bitcoin-ETP WisdomTree (BTCW-USD)
21Shares Bitcoin ETP (SWX: ABTC-USD)
Coinbase Physical BTC ETP (SWX: BITC-USD)
Correlation between Bitcoin ETP and spot price indicates price difference
As explained in the BZX stock exchange proposal, the calculation of the index will be based on the weighted average price (VWMP) for the last five minutes across five stock exchanges – Bitstamp, Coinbase, Gemini, itBit and Kraken.

In a very simple attempt to reproduce the calculation of the index with maximum return, daily spot prices from four of the five exchanges mentioned above are used – Bitstamp, Coinbase, Gemini and Kraken.

Since the Bitcoin ETP price scale often differs from the Bitcoin spot price, the daily percentage change (or daily income) is applied to all charts for easy comparison of price fluctuations.

The charts below show a comparison of the daily return of each of the three ETPs and the combined spot price of bitcoin calculated across four exchanges using the weighted average volume method.

The scatter chart on the left shows how well the ETP price matches the spot price. If they fit perfectly, all the dots should be on the blue dotted line. The graph to the right compares the daily percentage income and shows the difference between the two.

By comparing WisdomTree ETP and the site, while most of the dots on the scatter chart set are within the +/- 5% range, there are certainly large price differences outside this range. In one day in the three-month period, the daily return difference (dotted blue line) between ETP and the spot price exceeds 10%.

Bitcoin pip from 4 exchanges vs WidsdomTree ETP (percent change). Source: Cryptowatch
It is also interesting to note that the volatility of ETP prices tends to be higher than the spot price. The chart below, which physically compares Coinbase Bitcoin (blue line) and Bitcoin point (pink line), shows that the percentage change of the former can be close to 15%, while the latter just crossed 10%.

Bitcoin spot from 4 exchanges compared to Coinbase Physical Bitcoin (percentage change). Source: Cryptowatch
Similarly, 21Shares Bitcoin ETP is more volatile than the spot price and the website correlation is lower (62%) than WisdomTree (67%) and Coinbase Physical Bitcoin (66%).

Source: CoinTelegraph

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