Recently, surrounding the progress of approving a Bitcoin spot exchange-traded fund (ETF) in the United States, crypto asset management company Bitwise objected to the SEC’s reasons for not approving its spot Bitcoin (BTC) fund.
Interpreting “mixed” academic performance
To strengthen its case, Bitwise submitted a review of the academic literature on the Bitcoin futures market and its correlation to spot pricing.
The decision is part of Bitwise’s revisions to its spot Bitcoin fund application, a product the company has been trying to launch for years.
It’s worth noting that the SEC’s stance on spot BTC ETFs tends to be driven by concerns about the relationship between the Bitcoin futures market and the spot market.
Regulators have previously described academic views on the matter as “mixed” or “inconclusive,” particularly on the question of which of the two markets is ahead of the other, the filing said. These concerns are key to the SEC’s hesitancy to approve spot funds.
However, the Bitwise amendment filed by NYSE Arca provided counterarguments. The document states:
To address all of the committee’s key concerns regarding the hybrid academic record, the sponsor reviewed all 11 orders of disapproval.
From this point of view, Bitwise’s basic information shows that the academic view is not as complicated as the SEC paints it to be.
The battle over spot and futures market dynamics
Bitwise has a strong belief in the academic literature, which, according to the document, demonstrates consensus. The firm believes that well-structured studies “consistently” emphasize that the CME futures market precedes the spot market in the price discovery process.
This statement suggests that the Bitcoin market is more resistant to price manipulation than regulators claim. According to the document, this belief did not “come out of nowhere.” During the past two years (January 2020 to August 2021), Bitwise contacted SEC staff 14 times to present their findings. One of the most notable materials shared with the SEC was a comprehensive 107-page white paper.
Additionally, to solidify its position, Bitwise submitted another 24-page white paper stating that the new Bitcoin fund is “unlikely to be a major influence on CME Bitcoin futures market prices.” NYSE Arca emphasized that this understanding is consistent with the first steps of a major market test.
Reviewing the points made in the document, the crux of the argument remains that the trading dynamics of the new spot BTC ETF will not have a significant impact on prices in the CME futures market without simultaneously affecting the spot market, primarily due to the close relationship with spot prices.
Meanwhile, Bitcoin price has shown a bearish trend over the past week. The asset has plunged 3.6% in the past 24 hours and 1.3% in the past week, trading at $26,310 at the time of writing.
Featured images from Unsplash, charts from TradingView
