Bitcoin Futures May Be Coming, But a Bitcoin ETF Is No Lock
November 01 2017 - 7:10PM
Dow Jones News
By Paul Vigna
CME Group's decision to create a bitcoin-futures contract could
pave the way for a bitcoin-based exchange-traded fund, but it is no
sure thing.
On Tuesday, the operator of the Chicago Mercantile Exchange and
other futures markets announced plans to launch a contract based on
bitcoin by the end of the year, pending regulatory approval.
It would be a significant development for the digital currency,
for the first time giving Wall Street traders a straightforward way
to bet on bitcoin's price, both up and down. Futures also offer a
way for market participants to protect themselves against the
currency's notorious price swings.
Some say a vibrant futures market in bitcoin could also open up
a new path for the Securities and Exchange Commission to approve a
bitcoin-based ETF, and some ETF players have looked at basing their
product off a bitcoin futures contract.
"This definitely is a positive development," said Dimitri
Nemirovsky, a founder at SolidX Management LLC, which had proposed
one of the bitcoin ETFs that the SEC rejected earlier this year. "A
bitcoin futures contract listed on a major exchange like CME
directly addresses one of the concerns the SEC staff identified in
their disapproval notice for our fund."
Still, the existence of a futures contract alone likely wouldn't
be enough for the commission to change its mind. The wording of the
SEC decision referred to "well-established, significant, regulated
markets." That suggests that the SEC would require not just the
existence of a futures contract, but enough trading history for it
to constitute a liquid, transparent market.
Unlike commodities that have become the basis for popular
futures contracts and ETFs, bitcoin is only eight years old. The
digital currency created by an anonymous founder isn't backed by
any sovereign nation, but exists on a network of interconnected
computers. Its central feature is an open ledger of transactions
that results in a public record that can't be altered.
Since its launch in 2009, bitcoin has been a source of both
controversy and viral growth, associated with both illicit dark-web
activities like ransomware and money laundering, as well as the
Silicon Valley startup scene.
In March, the SEC rejected two of the proposed ETFs, one from
the brothers Cameron and Tyler Winklevoss, and a second from
SolidX.
The SEC's main objection was that bitcoin trading was too opaque
and that market manipulation would be undetectable. The commission
was concerned that most bitcoin trading was done on unregulated
exchanges outside the U.S. Because of that, the U.S. exchanges that
would have listed and traded the bitcoin ETFs -- the New York Stock
Exchange for SolidX and the renamed Cboe BZX U.S. Equities Exchange
for the Winklevoss Bitcoin Trust -- wouldn't be able to enter into
surveillance-sharing agreements that would allow them to guard
against market manipulation.
The commission wrote in its rejection of the SolidX proposal in
March that for previously approved ETFs "there have been in every
case well-established, significant, regulated markets for trading
futures on the underlying commodity."
In its announcement Tuesday, CME essentially said it is
comfortable dealing with bitcoin exchanges that the SEC largely is
nervous about. Its futures contract will be based on pricing data
from four existing bitcoin exchanges, Bitstamp, GDAX, itBit and
Kraken.
The SEC on Wednesday declined to comment. The Winklevoss
brothers were unavailable to comment.
A third ETF, the Bitcoin Investment Trust from Grayscale
Investments, trades as an over-the-counter product. The firm had
applied to have it listed as a fully regulated ETF, but withdrew
that application in October before the Commission ruled on it.
Grayscale declined to comment on Wednesday.
The Bitcoin Investment Trust has risen sharply this year as the
price of bitcoin has surged. Recently at $828 per share, it is up
581% this year. Bitcoin traded as high as $6,629 on Wednesday,
another record high. It is up roughly 580% this year.
--Alexander Osipovich contributed to this article.
(END) Dow Jones Newswires
November 01, 2017 18:55 ET (22:55 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
CME (NASDAQ:CME)
Historical Stock Chart
From Apr 2024 to May 2024
CME (NASDAQ:CME)
Historical Stock Chart
From May 2023 to May 2024