SEC Delays Decision on Bitwise Bitcoin ETF Proposal, Seeks Comments From Interested Parties

The US Securities and Exchange Commission (SEC) has granted itself more time to consider a request for a rule change that would allow Bitwise Asset Management to list a Bitcoin ETF product.

Bitwise is a subsidiary of ICE, owners of the New York Stock exchange (NYSE). The proposed Bitcoin ETF would be listed by Bitwise on the NYSE Arca exchange.

This is the second delay imposed on the Bitwise ETF, and interested parties are asked to make submissions to the SEC regarding the proposal.

A number of questions to guide feedback from interested parties can be found at the end of the notice.

The SEC begins the notice by briefly describing Bitwise’s proposed and rule change:

“The Exchange proposes to list and trade shares of the Bitwise Bitcoin ETF Trust under NYSE Arca Rule 8.201-E. This Amendment No. 1 to SR-NYSEArca-2019-01 replaces SRNYSEArca-2019-01 as originally filed and supersedes such filing in its entirety. The proposed change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room.”

The SEC states that NYSE Arca believes it has designed a product that can resist market manipulation:

“The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest.”

To date, numerous Bitcoin ETF proposals have been rejected by the SEC, mainly due to regulators’ concerns about price manipulation in underlying Bitcoin markets.

For instance, in its lengthy Notice of Filing Amendment delaying the Bitwise ETF, the SEC refers to its rejection of a Bitcoin ETF proposal submitted by the Winklevoss twins:

“Conclusion Regarding Standards in the Winklevoss Order: In summary, the Commission articulated two ways that a proposed bitcoin ETP could meet the standards set forth in the Winklevoss Order. The Commission explained that the proposed ETP must show either that the underlying market for bitcoin is uniquely resistant to market manipulation, and/or that a surveilled derivatives market of significant size existed alongside that market.”

The Winklevoss brothers are known for having sued Mark Zuckerberg for allegedly stealing the idea for Facebook. The twins went on to become early Bitcoin investors who now own the New York-licensed cryptocurrency trading platform, Gemini.

According to the SEC, as part of its ETF submission, Bitwise proposes to safely store Bitcoins that underpin the fund:

“According to the Registration Statement, the investment objective of the Trust is to provide exposure to Bitcoin that is reflective of the actual Bitcoin market where investors can purchase and sell Bitcoin, less the expenses of the Trust’s operation. In seeking to achieve its investment objective, the Trust will hold Bitcoin…”

The Trust will also collect fees in Bitcoins:

“The Trust will process all creations and redemptions in-kind, and accrue all fees in bitcoin (rather than cash), as a way of ensuring that the Trust holds the desired amount of bitcoin-per-share under all scenarios. The Trust will not buy or sell Bitcoin under any situation other than if the Trust is required to liquidate…”

In seeking the rule change, Bitwise made its own lengthy submission to the SEC in March.

In that submission, Bitwise claimed that all but a handful of global cryptocurrency exchanges were faking volumes.

Whereas exchanges were collectively reporting $6 billion USD in daily Bitcoin trading volume, Bitwise found only $273 million USD in Bitcoins were actually changing hands on a daily basis.

This information concurs with claims made by many, including “blockchain” skeptic and writer David Gerard, who had has written that Bitcoins are, in fact, very thinly-traded and that prices can be easily pumped by whales trading batches of 1000 Bitcoins on particular exchanges.

Bitwise admitted to the market manipulation in an attempt to prove to the SEC that it will be constituting its Bitcoin spot market figures from reliable sources.

According to the SEC report:

“…(I)n seeking to ensure that the price of the Trust’s shares is reflective of the actual Bitcoin market, the Trust will value its shares daily based on prices drawn from ten Bitcoin exchanges that the Sponsor and its affiliate, Bitwise Index Services, LLC (“Bitwise Index Services”) believe, based on their research and analysis (discussed below), represent substantially all of the economically significant spot trading volume on Bitcoin exchanges around the world…”

Bitwise’s Trust also reportedly plans to, “…store its Bitcoin in custody at a regulated third-party custodian, and will not use derivatives that may subject the Trust to counterparty and credit risks.”

As well, Bitwise claims it will maintain a “Crypto Index Committee, which has ultimate responsibility and authority for developing, maintaining and adjusting the Bitcoin Price as well as other cryptoasset data products and indexes. The Committee is composed of three members of the Bitwise leadership team selected for seniority and expertise in indexing, cryptoassets and data engineering.

In turn, the Committee will be advised, “…by the Bitwise Crypto Index Advisory Board (the ‘Advisory Board’), an independent group of leading experts in the fields of both traditional asset indexing and crypto assets with members both internal and external to Bitwise.

However, “Advisory Board suggestions are not binding to the Committee.”

Interested parties can submit their thoughts on the Bitwise Bitcoin ETF proposal by website portal, by email or by conventional mail.

All submissions should refer to File Number SR-NYSEArca-2019-01, and can be submitted via the SEC’s Internet comment form (https://www.sec.gov/rules/sro.shtml)  or by e-mail to: [email protected].

Paper submissions should be sent in triplicate to:

Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.


SEC NYSE Arca Bitwise Bitcoin ETF 34-85854

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