Last year, the Chicago-based derivatives exchange market, Cboe, made headlines when it launched the first Bitcoin Futures on December 10th. At the time, this was Bitcoin’s first foray into the mainstream financial system. They would be joined later that month by the larger CME exchange as the only outlets offering regulated Bitcoin futures contracts.
Although the investment product ultimately underwhelmed in popularity, it was a significant symbolic step for digital currencies, which became incredibly lucrative last year but have consistently struggled to achieve traction in the mainstream financial system.
Cboe Advocates for Change
This week, Cboe once again made headlines as it’s actively lobbying the Securities and Exchange Commission to allow Exchange Traded Funds (ETFs) for cryptocurrencies. In a detailed, 9-page letter to the regulatory body, Cboe president and COO, Chris Concannon, makes an appeal for their acceptance by addressing many of the SEC’s most pressing concerns about digital currencies.
In a January letter, the SEC indicated that it was not inclined to accept cryptocurrency ETFs as a viable financial product. Dalia Blass, director of investment management at the SEC, wrote,
“there are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors.”
Specifically, Concannon’s letter addresses regulatory concerns brought up by the SEC in January, including issues related to
- Valuation
- Liquidity
- Custody
- Arbitrage
- Manipulation
The SEC’s January letter indicated that they would not approve cryptocurrency ETFs until these concerns were addressed.
The Cboe’s letter offers a detailed response and possible solutions for each of the SEC’s primary concerns. As an industry leader in crypto integration, the Cboe drew from their extensive experience and expertise to make their argument.
The Benefits of an ETF
While ETFs can encompass many different financial products, they would allow investors to purchase groups of digital currencies instead of making individual investments in different currencies.
As a result, investors could be less exposed to the wild price swings that are frequently featured in crypto markets.
Bitcoin is the first and most popular digital currency, so it receives a lot of investor attention. However, with a growing number of altcoins asserting their prominence, it’s becoming increasingly apparent that there are several worthy pursuits for crypto investors. An ETF allows investors to pursue additional currencies while still maintaining a stake in Bitcoin.
In the past year, the crypto landscape expanded to include a lot more than just Bitcoin, and some investors would like to explore those options as well, and a bucketed investment approach can make the most sense.
An Uncertain Future
In their concluding remarks, Concannon notes,
“Cboe applauds the Commission for the measured approach that it has taken thus far related to cryptocurrency that has allowed room for innovated and served to place the United States at the forefront of the emerging cryptocurrency industry.”
However, the SEC hasn’t issued a response, and it’s unclear if the Cboe’s letter will change their thinking on the issue. What’s more, given the tepid reaction to Bitcoin futures products, the potential for crypto ETFs to be a disruptive force in the investment industry may be exaggerated
We are keeping an eye out for an official response from the SEC, which should indicate how they are thinking about this issue in light of the Cboe’s recommendations.
