Clayton’s Law: Manipulation Needs to Go Before SEC Approves a Crypto ETF
December 2, 2018 by Paul de Havilland
U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton reiterated the commission’s reluctance to approve of a bitcoin ETF. Clayton argues that evidence that market manipulation remains widespread in crypto markets means it is not feasible for the SEC to approve of any ETF products at present.
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SEC: Crypto Market Manipulation Means No ETFs
At the Consensus Invest Conference in New York this weekend, SEC Chairman Jay Clayton reaffirmed the watchdog’s commitment to manipulation-free markets. He said the commission will not approve of a bitcoin ETF until the body is confident the market is free from manipulation.
In fact, possibly for the first time, the Chairman described the body’s primary concern with exchange-traded crypto products: market manipulation. Hitherto, manipulation had been but one of a host of issues preventing the SEC from approving a bitcoin ETF. Per Clayton:
“What investors expect is that trading in the commodity that underlies that ETF makes sense and is free from the risk of manipulation. It’s an issue that needs to be addressed before I would be comfortable.”
Whales Need to Peirce Off
Popular among the crypto community, commissioner Hester M. Peirce issued a dissenting argument in the July Winklevii ETF denial, the second their proposal was issued. Peirce’s stance essentially argues that the ushering in of institutional money to cryptocurrency markets would make current bitcoin whales less influential and, with more money sloshing around, manipulation less likely.
The VanEck SolidX ETF proposal is a far superior application than Gemini’s, so her confidence in the lesser product is quite telling. Peirce felt at the time that many of the concerns the SEC had would be best addressed by approving an ETF.
Doing so would bring some of the qualities to crypto markets the SEC claims it needs to see before approving a regulated, exchange-traded product. These include increased volume, more open price discovery mechanisms, and enhanced investor protections. And of course, less price manipulation. Per Peirce:
“More institutional participation would ameliorate many of the Commission’s concerns with the bitcoin market that underlie its disapproval order.”
(It is important to note that institutional money likes derivative products like ETFs and futures because they give hedge funds and investment managers the ability to better manage risk.)
Exchanges No Place for the Faint of Heart
Cryptocurrency exchanges currently lack investor safeguards and the ability (or preparedness) to prevent market manipulation. Many act outside of any effective jurisdiction, some have well-earned reputations as fraudulent operations, and others are severely lacking in technological prowess, often struggling to keep their platforms operating for more than a few hours at a time.
Arbitrary closures of accounts, ransoming investor funds, and appalling levels of customer service mar many exchanges, even in jurisdictions requiring higher standards.
Given the current state of widespread crypto exchange impropriety and ineptitude, their capacity to prevent market manipulation is, understandably, limited.
Have your say. Does the industry deserve SEC shunning given the generally unprofessional state of the crypto exchange industry?
Images via Pixabay