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.

[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.

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.

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: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?

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.

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: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!

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!