ETF applications: Devil in the details
The Winklevoss brothers proposed the trading of Bitcoin ETFs on their own trading platform – Gemini – and while both applicants are highly successful entrepreneurs it is my belief that the maturity of their exchange, which only opened for business in 2014, has been a point of consideration for the SEC across both applications. While not explicit in any meeting minutes, it is clear that there the SEC would be concerned over a lack of evidence to suggest that the Gemini exchange would be able to support such a huge surge of institutional money and transactions that the market believe would need to be supported off the back of a Bitcoin ETF being launched.
Furthermore; the Winklevoss brothers’ application intended to go far beyond the institutional investors as their application proposed issuing an EFT being priced from $0.01. The potential surge from retail and institutional investors simultaneously; with no protection in place, is, in my opinion, too much, too soon, for a government agency already struggling to keep up with the speed of change that crypto assets are bringing.
By comparison the Cboe application is a much more considered and far more mature in approach, demonstrating an inherent understanding and perhaps empathetic attitude towards the SEC; who clearly have a difficult job when it comes to balancing regulation with innovation suffocation.
The Cboe application provides the SEC with an opportunity for another trusted party to effectively manage risk and any uncertainty more effectively. Unlike the Gemini Exchange, Cboe has long-term, proven capability in handling mass volumes of trades and transactions. This makes them a far more appealing and safer exchange to launch Bitcoin ETFs; while the application itself only proposes offering Bitcoin ETFs to institutional investors and high net individuals, setting a minimum purchase price of $125,000 per share.
Furthermore; the Cboe application also proposes self-imposed regulation by offering their investors with insurance protection for loss and theft, up to the value of $125 million. With such guarantees in place, it is perhaps more obvious why the crypto community has attached far more hope to the Cboe application than they have done to any of the previous attempts.
The crypto community should be encouraged by just how far the largest options exchange in the world are prepared to go to in order to gain an approval to trade Bitcoin ETFs.
As of August 2018 there are more than 300 institutional funds worldwide focussing on crypto assets, while established institutions such as Nomura are introducing custodian solutions for their own corporate investors.
Cboe will have considered the way the market is moving and will have noted the revenues it has provided to both Coinbase and Binance. That they are willing to enter the market and provide their customers with the certainty of insurance demonstrates that the market is prepared to adapt and self-regulate the industry in order to play their part. This is something that the SEC should find encouragement from as it allows them to ‘sit-on-the-sidelines’ to some extent as established, cash-rich partners take the lead almost on their behalf.