It is not the first time the U.S. Securities and Exchange Commission (SEC) rejected proposals for a Bitcoin spot exchange traded product (ETP), but efforts continue to be made by different financial institutions. The recent attempt made by Cboe BZX Exchange on Jan. 25 to list the Fidelity Wise Origin Bitcoin Trust as a Bitcoin ETP has also failed.
The SEC letter published on Feb. 8 pointed out that the exchange has not met its burden to demonstrate the fund is “designed to prevent fraudulent and manipulative acts” and “to protect investors and the public interest”.
Although proposals of Bitcoin spot ETPs have never been approved by the SEC and such products are not available in the U.S. market, they do exist in the European market. By investigating the prices of these ETPs traded in the European market, one could have a good insight into whether fraudulent and manipulative acts are possible.
To investigate whether the SEC’s concerns of fraudulent and manipulative acts are justifiable, this article will compare the historic prices of three European listed ETPs and the Bitcoin spot price history from 18 exchanges to see if there are any significant price disparities that could induce market manipulation.
The SEC’s primary concerns
There were two major concerns raised by the SEC from a technical perspective towards BZX Exchange’s proposal:
(1) No data or analysis was provided to support the argument that arbitrage across the Bitcoin platforms helps to keep global Bitcoin prices aligned with one another, thus hindering manipulation and eliminating any cross-market pricing differences. There is no indication of how closely Bitcoin prices are aligned across different Bitcoin trading venues or how quickly price disparities may be arbitraged away.
(2) The Exchange does not demonstrate the proposed methodology for calculating the index would make the proposed ETP resistant to fraud or manipulation. Specifically, the exchange has not assessed the possible influence that spot platforms not included among the index’s constituent Bitcoin platforms would have on Bitcoin prices used to calculate the Index.