The SEC Just Handed Bitcoin a Huge Setback (theverge.com)

The SEC has decided to deny an application for the first exchange-traded product that tracks the price of bitcoin, according to an order posted on the regulator's website. From a report: In an order today, the commission found that the proposed fund was too susceptible to fraud, due to the unregulated nature of Bitcoin. The result is a major setback for the fund, and a frustrating false start for the crypto-currency at large. The ETF is essentially a common stock fund pegged to the price of Bitcoin, allowing investors to purchase Bitcoin without the work of establishing a personal wallet. (In concrete terms, the ETFs investors will be buying shares whose price will always be the same as the price of a single bitcoin, similar to an equivalent investment in gold or cattle.) Without a wallet, investors still won't be able to spend Bitcoin, but they can buy and sell it at market price, adding more liquidity to the Bitcoin system overall.

Comments

Bitcoin not setback at all.

[HornWumpus]

Now investors need to actually buy bitcoin, not just some shadow fund that may of may not actually hold bitcoin. Likely the fund would play arbitrage and create virtual bitcoins by matching short and long positions into nothing but profit for them.

Having a fund might somehow 'add liquidity', but only a small share for the liquidity that investors buying/selling actual bitcoin will add.

Re:Bitcoin not setback at all.

[Penguinisto]

I'm mostly curious as to why they didn't try to make it a straight commodity to be traded against first... they'd have an easier time of it in Chicago than they would in New York. Of course it'd be a bitch to get a certified and unassailable benchmark of value that the SEC would put up with, but still...

Re:Bitcoin not setback at all.

[bill_mcgonigle]

Now investors need to actually buy bitcoin

Right -- anybody who was waiting for the ETF now has to decide if they want to invest in Bitcoin or not. If they do, the price of a BTC goes up.

Really, though - I can see an ETF for an index fund or gold even (I realize the major gold ETF's are a sham, but in theory). It's a pain in the neck to buy and sell actual gold in quantity because it's frikkin' heavy. Same for any other industrial commodity. But the difficulty of buying a substantial volume of bitcoin is far, far, lower, so the ETF makes even less sense.

Granted, it could be integrated into trading software the way other commodities are, but actually storing bitcoin is a matter of keeping your paper wallet safe.

Re:Bitcoin not setback at all.

[religionofpeas]

It's a pain in the neck to buy and sell actual gold in quantity because it's frikkin' heavy.

If you can afford more gold than you can carry, you can afford someone to carry it for you.

No

[sexconker]

No, this is not a setback for Bitcoin. It's a setback for some shitclowns who want to sell Bitcoin via an ETF.
Bitcoin - the network, currency, and blockchain - are unaffected by this.

Re:No

[Anonymous Coward]

You don't even have to speculate. Everyone needs dopamine, seratonin, and norepinephrine. Clicking the button that posts this will give me a small rush that apparently I can't live without (or I'd go do something else and get my fix from it!), and when someone reads it it will have some sort of minor effect on them. Not even counting all the chemical transitions required just to read and interpret it...

Somebody might see that Oxford comma up there and be filled with such an uncontrollable rush that they would be compelled to respond through a chemical operation that is almost entirely beyond their control, just like a crazed junkie.

We're all drug addicts, born and bred, every last one of us. Full stop.

Re:No

[rahvin112]

Right not affected. The fraudsters, pyramid schemers, blackmailers, hackers, drug dealers, ponzi schemes and others have nothing to worry about the SEC might start paying attention to Bitcoin and they continue uninterrupted.

Re:No

[wagnerer]

Actually its great news for Bitcoin. Putting more money into the coin itself rather than a shadow proxy.

Ah the irony....

[Anonymous Coward]

"Can't accept bitcoin because it's too susceptible to fraud" could almost be translated to "we don't see enough loop holes or other ways to exploit this new currency, yet"

Re:Ah the irony....

[Goaway]

Sure, it could, if you were insane.

In reality, it means bitcoin is too susceptible to fraud.

Re:Ah the irony....

[lgw]

The SEC is one of the good guys when it bothers to do its job. It's failings are failings to apply its regulations. The market rules - the majority of which are the rules of the markets, but the SEC is also important - defeat centuries of history of ways to scam the market. There are a constant stream of new ways, sure, but the wealth of old ways are really quite bad.

not really a setback

[gravewax]

I don't like bitcoin but this is hardly a setback for it. The SEC is extremely strict on listed companies from financial reporting all the way down to fraud protection. At the moment it is too easy for any individual or group of individuals with means to manipulate the market.

Re:not really a setback

[mysidia]

At the moment it is too easy for any individual or group of individuals with means to manipulate the market.

That's true of ordinary Stocks as well. As well as the Gold market; all subject to manipulation of the market by a small number of moneyed players.....

So why is the SEC unduly concerned about the fraud potential with Bitcoin?

Re:not really a setback

[borcharc]

Because the "fraud" could be conducted by unapproved players who are not paid up with the right people. that can not stand!

Re:not really a setback

[lgw]

It's illegal to corner the market in gold or stocks. Salomon brothers learned that the hard way with bonds. The guys who cornered the silver market lived to regret it. There's just no such protection for BTC. BTC is open to the worst sorts of market manipulation right now.

Re:not really a setback

[gravewax]

If you buy and sell ordinary stock to manipulate the market you will need to go through an exchange and be identifiable and open to prosecution by the SEC. If you decide to manipulate the bitcoin market with a 100 million dollars it is possible to do it without any preventative measures from the SEC or means to prosecute.

Re:not really a setback

[mysidia]

If you decide to manipulate the bitcoin market with a 100 million dollars it is possible to do it without any preventative measures from the SEC

100 million$$ would be a tiny fraction of the Bitcoin market's daily trading volume... So how do you propose that would be possible to do, anyways? Maybe a 100 million $$-costing smear campain would do it

you will need to go through an exchange and be identifiable and open to prosecution by the SEC.

To trade a significant amount of Bitcoin, you most likely will have to identify yourself as well. Just like some countries control stocks, basically all countries have controls on their currency and their banks, And you don't move $100 million into a Bitcoin exchange without being noticed.

Not necessarily with stocks. Particularly with international stocks, they may not be listed on an Exchange identifiable to the SEC.
ETFs invest in those too. Some options buy options on stocks instead, which are even more manipulatable.

Price manipulation typically works by generating internet spam.... Pump and Dump, but plenty of people who sold the stock as it went up are not involved with the manipulation, so it's not inherently making the foul actors identifiable.

Re:not really a setback

[religionofpeas]

100 million$$ would be a tiny fraction of the Bitcoin market's daily trading volume... So how do you propose that would be possible to do, anyways? Maybe a 100 million $$-costing smear campain would do it

Aquire over 50% of the hashing power. You spend 50 million on the actual hardware, and the other 50 million to sabotage existing mines.

Re:not really a setback

[gravewax]

If you decide to manipulate the bitcoin market with a 100 million dollars it is possible to do it without any preventative measures from the SEC

100 million$$ would be a tiny fraction of the Bitcoin market's daily trading volume... So how do you propose that would be possible to do, anyways? Maybe a 100 million $$-costing smear campain would do it

you will need to go through an exchange and be identifiable and open to prosecution by the SEC.

To trade a significant amount of Bitcoin, you most likely will have to identify yourself as well. Just like some countries control stocks, basically all countries have controls on their currency and their banks, And you don't move $100 million into a Bitcoin exchange without being noticed.

Not necessarily with stocks. Particularly with international stocks, they may not be listed on an Exchange identifiable to the SEC. ETFs invest in those too. Some options buy options on stocks instead, which are even more manipulatable.

Price manipulation typically works by generating internet spam.... Pump and Dump, but plenty of people who sold the stock as it went up are not involved with the manipulation, so it's not inherently making the foul actors identifiable.

LOL ummm no, the entire value of all bitcoins in existence at the moment is worth less than 20 billion. a 100 million dollar would create a massive market swing and be great for pump and dump type scenarios when linked to a traded stock

Re:not really a setback

[michelcolman]

Except for the detail that the price of the ETF goes up and down together with the price of bitcoin. Whenever there's a difference between the two, high frequency trading algorithms immediately start selling the more expensive one and buying the cheaper one. You'll have to get more creative than that. (Using derivatives, for example).

Re:not really a setback

[dbIII]

So why is the SEC unduly concerned about the fraud potential with Bitcoin?

Here's a guess. Maybe they tried to find the guy who started bitcoin and when they were told he was in hiding they had a few second thoughts.

The SEC is correct.

[Gravis Zero]

Bitcoin is something that can easily be manipulated thanks to the fact that China holds the majority of the bitcoin mining operation. If the owner of the Chinese mining rigs wanted, they could manipulate the currency's value with ease. The SEC made a sane and calculated decision here.

Re:The SEC is correct.

[Registered Coward v2]

Bitcoin is something that can easily be manipulated thanks to the fact that China holds the majority of the bitcoin mining operation. If the owner of the Chinese mining rigs wanted, they could manipulate the currency's value with ease. The SEC made a sane and calculated decision here.

Exactly. They could easily collude to drive the market, by colluding to control how they mine BitCoin. Since they have what, 70% of the mining capability they could control the rate of supply as needed to profit since their appears to be a correlation between price moves and mining difficulty changes. For example, they could short the ETF and then deliver a lot of new coins to cause a drop in its value and then closeout their position at a profit.

Re:The SEC is correct.

[Anonymous Coward]

> If the owner of the Chinese mining rigs wanted, they could manipulate the currency's value with ease

It's not a manipulation of the currency's value. It's a change of the value through normal behavior, as designed. This is an admission of the US currency manipulator that a currency they can't effectively manipulate is not of interest to them. Non-news.

Re:The SEC is correct.

[bill_mcgonigle]

Rare earth metal commodities is something that can easily be manipulated thanks to the fact that China holds the majority of the rare earth metal mining operations. If the owner of the Chinese mines wanted, they could manipulate the metals' value with ease. The SEC made a sane and calculated decision here.

Re:The SEC is correct.

[Gravis Zero]

The difference is that mining 51% of rare earth metals doesn't define if rare earth metals are worthless.

SEC is ridiculous. Never fraud at Bitcoin exchange

[raymorris]

Yeah that statement from the SEC is ridiculous. There's never been any hint of fraud around any Bitcoin exchange. Okay maybe a couple of small exchanges have had issues, but never the big exchanges that handle 3/4 of all Bitcoin transactions, like Mt Gox. There could never be any fraud at Mt Gox.

Winklevoss

[neoRUR]

I guess another loss for the Winklevoss'. First Facebook and now this, how are they going to cope?

Re:Winklevoss

[DanielRavenNest]

The Winklevoss twins bought a lot of bitcoins when they were worth much less than today. I'm sure they can cope.

Dear SEC,

[PPH]

You still allow trading of naked credit default swaps. These have already been demonstrated to be susceptible to fraud and market manipulation. Remember AIG? 2008?

Who do we have to pay over there to get your approval for Bitcoin based securities?

Re:SEC is ridiculous. Never fraud at Bitcoin excha

[lgw]

Yeah, it's just like mortgage derivative securities - the SEC was talked out of regulating those, and what harm was done? I mean, really, of all the overblown concerns.
 

Obligatory complaint about summary acronyms

[blibbo]

Perhaps the summary could explain SEC and ETF. At a short glance it's not clear what these are, or if we are taking about an American / European / international organisation.

I don't read financial papers and I don't live in America. I don't think these are prerequisites for visiting Slashdot, and I think it's fair to assume that many Slashdot visitors have widespread minor interests, trying to get the headlines without getting bogged down /rant

Re:Obligatory complaint about summary acronyms

[DRAGONWEEZEL]

Securities & Exchange Commission
Exchange Traded Fund, a type of financial product from what I know similar to a mutual fund.

The Securities & Exchange Commission (SEC) sets the rules and regulations around trading securities such as stocks, bonds, ETF,s and other traded financial products.

Re:Obligatory complaint about summary acronyms

[blibbo]

Thanks!

Still a scam.

[Chas]

Like the SEC was EVER going to approve that.

A derivative of a totally unregulated virtual commodity that's created out of thin air?

Pfft. Keep smokin' that good shit!

Re:Still a scam.

[religionofpeas]

The game Farmville was created out of thin air, and was once worth $10 billion.

Re:Still a scam.

[Chas]

"was once".

I took a shit once. And I valued it at INFINITY DOLLARS.

Unfortunately the real world took its toll and the pricing collapsed .

Re:Still a scam.

[religionofpeas]

Unfortunately, value is not set by you, but by the person accepting your shit for payment. I bet that was disappointing. Now try selling a bitcoin for $500... I bet that's a lot easier.

And sure, valuation is variable. In the '30s the Reichsmark became worthless, and if a major crisis hits the US, the same may happen to the dollar.

more than that

[roman_mir]

It is more than that, ETF makes 0 sense in case of BitCoin, funny enough I left a comment here on that very subject just a day ago on the 'middleman' story.

Also there are some ideas for ETFs floating around in BitCoin space and this is truly stupid. With something like gold ETF it makes sense to have a traded fund because gold delivery actually *costs money*, but with BitCoin the cost of delivery is negligible, so there is no reason to have someone else store your BitCoins. In case of gold you can pay somebody to store a *physical amount* of gold for you, that's why you are paying a fee - somebody else has to store physical bars or coins and keep it all secure. But in case of BitCoin the entire concept is ridiculous, in fact ETFs will *introduce a storage cost where there is no need for one currently*.

Re:more than that

[michelcolman]

You can store bitcoins on your computer, then get malware and lose them all. Basically like storing money in a mattress.

Or you can open an account at a bitcoin exchange, with all the associated paperwork to do so (fill out forms, send copy of passport and utility bill, etc.), and then hope they don't get hacked like Mt.Gox, Bitfinex, etc.

Or you can just open your familiar stock trading interface and buy the ETF.

If all you want to do is invest in bitcoin without actually using it, the latter seems like a much easier solution. So it does make sense. Also, it will allow for official derivative products like futures, options, etc. (not the unregulated DIY-kind that exists today)

But alas, the SEC decided it was not a good idea. I can see their point, but on the other hand the ETF could actually have helped the currency mature by adding liquidity and credibility.

Re:more than that

[roman_mir]

A bunch of nonsense. If you believe that you are investing when buying BTC I cannot help you at all. You are speculating, not investing. Speculating that your purchase will happen at the right time for it to go up so you can sell.

If you are talking about investing in actual companies or resources, commodities, land even bonds then you don't need BTC. NOBODY wants BTC in exchange for anything. Even merchants who take BTC do not actually take possession, they work with companies like Bit Pay and they never see a single BTC, they get dollars or whatever their currency is.

ETF is a vehicle for people who are buying assets that are physical in nature, ETF removes the need for possession. ETF is also a way to buy small quantities of something where possession is impractical. ETF prevents delays in taking possession, it prevents storage fees. However ETF adds a transaction fee.

NONE of this makes any sense for BTC. BTC has no delay in taking possession, storage is free, BTC can be bought in sub 1 BTC quantities just as easily as 1000s of them. Why pay an ETF transaction fee on top of all the other fees when buying/selling BTC, so that the ETF manager can make some money as well?

There is not a single coherent reason for buying any of that, beyond that ETF allows to fuel the mania but it also works the other way around. ETF stampede to buy pushes prices up, as a single buyer (the fund) has to acquire the BTCs, but when sellers leave end mass the stampede takes prices down faster as well and causes a crash.

In short: there is no BTC investment, no merchant takes possession, they never see the BTC, they see their own currencies, you can buy as tiny a quantity of BTC as you want and take possession immediately and store BTC freely without any storage fees, you can buy and sell the BTC on exchanges and avoid any added ETF transaction fees and without an ETF you don't have to overpay for BTC when buying without the ETF stampede and you can sell without a panic ETF selling, in both cases buying and selling on better terms (and without added fees), so if you are peddling ETF for BTC I think you are either ignorant or you stand to profit from a BTC ETF and the only people who stand to profit there are ETF managers, so I feel your loss.

Re:more than that

[roman_mir]

You are talking about an index, which also makes no sense for the BTC.

Again, you are free to buy and sell BTC in any small or large quantities as you wish already without any ETFs present, so you can allocate your money towards BTC if you believe wrongly that BTC is an investment vehicle as opposed to a speculative asset at best. However putting BTC in the same line as gold or oil or cows is where you are either misguided or peddling fiction, because BTC has no intrinsic value whatsoever at all.

BTC has no weight in any material, for that matter talking about 'the price' of BTC is a ridiculous sham, especially when comparing it to the price of any other physical asset.

Comparing a single BTC to a 1 ounce of gold for example is a sham, there is 1 ounce of BTC, there is no 1 meter of BTC, there is no 1 gallon of BTC, BTC cannot be measured in physical terms, thus saying that 1BTC > 1 ounce of gold is completely retarded, since you could as well compare the price of 100000BTC to 1 ounce of gold or 00000.1BTC to 1 ounce of gold and the comparison would be just as arbitrarily stupid as comparing 1BTC to 1 ounce of gold, none of this is comparable at all but in terms of absolute numbers today 10000BTC is much bigger than 1 ounce of gold, 00000.1BTC is much smaller than 1 ounce of gold, so what?

1BTC is an arbitrary unit with no intrinsic value or substance, thus it cannot belong in an ETF with things like gold or cows or land or oil or anything.

Re:more than that

[roman_mir]

2 corrections, which I have to make now because I am super sleepy:

1.

Comparing a single BTC to a 1 ounce of gold for example is a sham, there is 1 ounce of BTC, there is no 1 meter of BTC,

- there is no 1 ounce of BTC of-course.

2.

but in terms of absolute numbers today 10000BTC is much bigger than 1 ounce of gold, 00000.1BTC is much smaller than 1 ounce of gold, so what?

- did not mean to compare in absolute numbers, meant to do the comparison in relative terms, in terms of US dollars.

Bitcoin is for amateurs

[dave562]

Real gangsters keep their wealth in Rolex's and cocaine

Re:SEC is ridiculous. Never fraud at Bitcoin excha

[dbIII]

Spot on - Magic the Gathering online eXchange, the name that smacks of pure professionalism and not some guy who is going to walk away with your stuff :)
I shouldn't have laughed at the time but I did. The pyramid scheme scammers got scammed!