When Bitwise originally applied to launch a Bitcoin ETF earlier this year, it used a unique and rather unorthodox strategy: rather than denying that BTC markets were susceptible to market manipulation, Bitwise alleged that the vast majority of BTC volume was artificial, and demonstrated that it had the tools to identify and report this.
However, according to the SEC’s rejection of Bitwise’s Bitcoin ETF application late last week, this strategy seems to have failed: ‘the Sponsor has asserted that 95% of the bitcoin spot market consists of fake and non-economic activity, but has not established that it has, in fact, identified the ‘real’ bitcoin market, or that the ‘real’ bitcoin market is isolated from the fraudulent and manipulative activity,” the SEC’s rejection of the application reads.
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The rejection also disagrees with Bitwise’ assertion that Bitcoin’s “fungibility, transportability, and ‘exchange-tradeability’” make it resistant to market manipulation: “the manipulation of asset prices can occur through trading activity that creates a false impression of supply or demand,” says the document.
Ultimately, the SEC said that Bitwise’s attempt to use its identification of market manipulation as evidence that a Bitcoin ETF would be resistant to market manipulation would not work had essentially backfired.
“The Commission concludes that the Sponsor’s concessions that 95% of the reported trading in bitcoin is ‘fake’ or non-economic (including wash trading or trading that is simply fabricated)—and that the early bitcoin market may have been subject to market manipulation–effectively concede that the properties of bitcoin do not make it inherently resistant to manipulation.”
Perhaps the “95% of the market is fake…but we can trust the 5% that is real” ….wasn’t the best angle to push on…..
— Crypto Fring (@Crypto_Fring) October 10, 2019
Despite a recent surge in trading volume, the inflow of capital onto Intercontinental Exchange (ICE)-created crypto futures trading platform Bakkt has also been generally underwhelming: its first-day volume was just 72 BTC, and tepid trading volumes over the following weeks were even blamed for declines in the price of Bitcoin.
ICE’s founder and CEO, Jeff Sprecher, also told Fortune at the time of the launch that he wouldn’t go so far as to say that institutional investors were ready to buy Bitcoin futures en masse: “it’s not demand yet, it’s intense curiosity,” he explained.
However, if that “intense curiosity” manages to find an outlet before a Bitcoin ETF is approved, perhaps there won’t be a real reason to pursue its approval anymore.
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