Introduction
Bitcoin Spot ETF
The specific issue the SEC used to deny Grayscale’s Bitcoin ETF was that the SEC requires a Cooperative Agreement between Grayscale and an exchange of ”significant size” to monitor the Bitcoin market for price manipulation. The New York Stock Exchange signed the cooperative agreement with Grayscale, and put its substantial prestige behind the Grayscale Bitcoin Spot ETF application. However Greyscale’s application for a Bitcoin Spot ETF was rejected by the SEC as being insufficient to monitor the Bitcoin market for price manipulation. Additionally, the SEC said the Bitcoin market was to immature to support a Spot ETF.
Chicago Board of Merchantile Exchange
However when the SEC reviewed the Bitcoin Futures ETF application of Proshares and approved the Bitco Bitcoin Futures ETF, who signed the Cooperative Agreement to monitor for price manipulation of Bitcoin? The Chicago Merchantile Exchange which is the trading exchange for options, futures and other derivative products.
Inconsistency
The inconsistency of the SEC in stating that the New York Stock Exchange, which actually has specialized in securities trading for 200 years, was insufficient. While the Chicago Board of Mercantile Exchange, which specializes in trading options, futures and other derivative products, was sufficient, was startling.
Maturity matters, until it doesn’t
Additionally, the SEC said ”the Bitcoin market wasn’t mature enough” for an ETF in its rejection of Grayscales application, but this issue of maturity was of no consequence for the Bitcoin Futures ETF?
SEC has faith in the Chicago Board of Merchantile Exchange.
Finally, add this bit of irony. The very year the SEC approved the Bitcoin Futures ETF, the SEC fined JP Morgan one billion dollars for price manipulation on derivatives traded on the Chicago Board of Merchantile Exchange. You can’t make this stuff up.
Court ruling
So while the SEC could deny Grayscale Application with this irrational string of words, it doesn’t hold up in court. Thus the judge ruled in Greyscales favor, saying that the SEC decision to deny the Greyscale Application, while approving the Proshares Futures application lacked rationality, and it was arbitrary and capricious. Arbitrary as in random and capricious as in lacking consistency.
However, the judge didn’t say Grayscale could have an ETF, it just ruled the SEC reasons for rejection were not valid. Thus the SEC has to come up with other reasons to reject the Grayscale Bitcoin Spot ETF application. And I think it has 45 days to do this. Once again remember the SEC is in control, and decides what reasons are valid. If Grayscale disagrees, it has to sue the SEC again, and wait for its court date, which could be another year away.
Blackrock
The true craziness of this situation was really illustrated by the Blackrock Bitcoin ETF application revision, as they now say they will enter a cooperative agreement with Coinbase, who will monitor Bitcoin Trading for price manipulation. The problem is that Coinbase is being sued by the SEC for Securities Fraud.
So Blackrock is proposing to the SEC, that Coinbase monitor the Bitcoin market for price manipulation, a type of securities fraud, while Coinbase is being sued by the SEC for securities Fraud. Blackrock is asking the SEC to allow the Fox to guard the Chickens. This is hilariously crazy. But the situation has already ceased to be ruled by logic and reason, so they will try it.
In some respects an appropriate metaphor would be that they are throwing paint on the wall, and hoping that the SEC calls it art. It so crazy it makes my brain hurt.
What do you think?