Cboe Letter to SEC Argues Industry Can Support Cryptocurrency ETFs

The president and COO for the Cboe Global Markets has sent a new letter to the U.S. Securities and Exchange Commission (SEC) expressing the view that the industry can support the launch of a cryptocurrency exchange-traded product (ETP).

The letter, from Chris Concannon, the company’s head, which was in response to a January staff letter from the SEC over concerns approving an ETF, said that while the market was still growing the industry was ‘developing quickly.’

“Looking specifically to bitcoin, the nascent futures markets are developing quickly and, while the current bitcoin futures trading volumes on Cboe Futures Exchange and CME may not currently be sufficient to support ETPs seeking 100% long or short exposure to bitcoin, Cboe expects these volumes to continue to grow and in the near future reach levels comparable to those of other commodity futures products at the time that they were included in ETPs,” he added.

Concannon went on to say that there are billions of dollars of bitcoin traded on cryptocurrency exchanges on a daily basis. Citing U.S.-based digital currency exchanges Coinbase, Kraken, and Gemini, Concannon said that the three combined had a daily notational bitcoin volume of around $950 million, with several days reaching over $2 billion traded, in December. Those numbers are up from approximately $165 million in October and $410 million in November.

“As the volumes continue to grow, especially on regulated U.S. markets, the overall spot bitcoin market looks more and more like a traditional commodity market and Cboe continues to believe that the spot market is sufficiently liquid to support a bitcoin ETP,” Concannon stated.

Responding to the staff letter, Concannon said that a ‘thorough evaluation of the manipulability of the market for an asset underlying an ETP, potential manipulation in the shares of the ETP, and the ability of regulators to prevent, identify, and take action against instances of manipulation is appropriate for all funds, cryptocurrency-related or otherwise.’

In his opinion, through the arbitrage mechanism, which would work similarly to other arbitrage opportunities in both the ETP and bitcoin, this would keep the price of the ETP in line with that of bitcoin, which would limit the risk of manipulation shares of the ETP. He adds that as the bitcoin marketplace has become interconnected the ‘manipulation of the price of any single venue would likely require manipulation of the entire bitcoin marketplace,’ making it cost prohibitive.

Taking measures to detect and prevent manipulation in the bitcoin futures markets, Cboe has entered into a detailed surveillance sharing agreement permitting the exchange access to order and trade data to conduct cross-market surveillance and regulation.

“As the cryptocurrency markets and infrastructure continue to grow and mature, especially in the spot markets and regulated cryptocurrency derivatives markets, the more easily they will fit within this existing framework,” Concannon said.