A recent development around approving a Bitcoin spot Exchange Traded Fund (ETF) in the US saw crypto asset manager Bitwise taking a stand against the SEC’s reasons for not approving their spot Bitcoin (BTC) fund.
Deciphering The “Mixed” Academic Record
To strengthen its case, Bitwise submitted a review of academic literature regarding the Bitcoin futures market and its correlation with spot pricing.
This decision is part of Bitwise’s amendment to its filing for a spot Bitcoin fund, a product the firm has been attempting to launch for several years.
Notably, the SEC’s stance on spot BTC ETFs has often been characterized by concerns over the relationship between the Bitcoin futures market and the spot market.
According to the document, the regulatory body previously described the academic perspective on this matter as “mixed” or “inconclusive,” especially concerning which of the two markets leads the other. Such concerns have been pivotal in the SEC’s hesitance in approving spot funds.
However, Bitwise’s amendment, filed by NYSE Arca, presents a counter-argument. The filing stated:
In order to address all of the Commission’s critical questions regarding the mixed academic record, the Sponsor reviewed all eleven disapproval orders.
With this, Bitwise’s underlying message suggests that the academic perspective isn’t as mixed as the SEC portrays.
The Dispute Over Spot And Futures Market Dynamics
Bitwise holds a conviction in the academic literature, which shows a consensus according to the document. The firm believes that well-structured studies “consistently” highlight that the Chicago Mercantile Exchange (CME) futures market precedes the spot market during price discovery.
This statement suggests that the Bitcoin market is more resilient to price manipulation than the regulator claims. According to the document, this conviction isn’t “born out of thin air.” Over nearly two years (January 2020 to August 2021), Bitwise engaged with the SEC staff on 14 occasions, presenting their findings. One of the most notable materials shared with the SEC was a comprehensive 107-page white paper.
Furthermore, in a decision to solidify their stance, Bitwise submitted another white paper, 24 pages in length, elucidating that a new Bitcoin fund “is unlikely to become the predominant influence on prices in the CME Bitcoin futures market.” NYSE Arca emphasized that this understanding aligns with the first prong of the significant market test.
Upon reviewing the points in the document, the crux of the argument remains that a new spot BTC ETF’s trading dynamics wouldn’t majorly influence the CME futures market’s prices without simultaneously affecting the spot market, primarily due to the close-knit relationship between Bitcoin futures and spot prices.
Meanwhile, BTC’s price has shown a bearish trend over the past week. The asset has plunged by 3.6% in the past 24 hours and 1.3% in the past week, trading at $26,310 at the time of writing.
Featured image from Unsplash, Chart from TradingView