Better Markets’ filed Comment Letters (found here and here) to the Securities and Exchange Commission (SEC) in response to multiple proposed rule changes filed by national securities exchanges to list and trade shares in spot bitcoin-based exchange traded products (“ETP”):
Why It Matters. The crypto industry’s track record is clear when it comes to consumers, investors, and financial stability. The industry has suffered $2 trillion in losses; multiple enforcement actions, bankruptcies, and criminal prosecutions; and dozens of lawsuits for lying, cheating, and stealing. Meanwhile, the principal beneficiaries of the crypto craze are the criminals who use it to facilitate ransomware, money laundering, and illegal conduct of all types. It is within this context that the SEC must evaluate latest wave of Bitcoin ETF filings this month.
What We Said. The Exchange Act is explicit in providing that any proposed changes to national securities exchange rules must be designed to ‘prevent fraudulent and manipulative acts and practices’ and ‘to protect investors and the public interest.’ The proposed rule changes at issue, which would enable the listing and trading of shares in spot bitcoin-based ETPs, fail to meet those statutory requirements and must be rejected.
The spot bitcoin markets (1) have a history of artificially inflated trading volumes due to rampant manipulation and wash trading; (2) are highly concentrated; and (3) rely on a select group of individuals and entities to maintain bitcoin’s network. These are features of the bitcoin network that make a proposed spot bitcoin-based ETP extremely vulnerable to manipulation by bad actors, posing unnecessary risks to investors and the public interest. The proposed rule changes offer little to neutralize these threats. Their reliance on the surveillance of other markets to detect and address manipulation is wholly inadequate. For example, the CME bitcoin futures market is not a regulated market of significant size, and the surveillance-sharing agreements with Coinbase would add little or no value in detecting and deterring manipulation of any proposed spot bitcoin-based ETP. Products that pose such clear threats to investors and fail to comply with the core requirements of the law must be rejected.
Bottom Line. Our comment letters urge the SEC to remain consistent with its previous orders disapproving such filings and reject the eight proposed rule changes pending before the agency.