On March 23, 2018, CBOE president Chris Concannon has expressed his belief that markets will support a Bitcoin exchange-traded product (ETP) in a letter to the United States’ Securities and Exchange Commission (SEC). As the firm’s most senior executive, Concannon has managed to steer his company clear of regulatory sanction during a time when lawmakers all over the world formulate regulatory policy on cryptocurrencies.
A Sign of a Maturing Asset Class
CBOE Global Markets feels that the market will support the launch of the Bitcoin ETP without adversely impacting the market nor compromising users’ security, of which the latter is a prime concern for legislators.
While Concannon didn’t approach the SEC with an outright plea to enable the product, he did cite data collected by CBOE.
During the launch of Bitcoin futures on the exchange in late 2017, the company documented various snippets of relevant data to compile a convincing argument that the market is now shifting toward an ability to support a Bitcoin exchange-traded fund (ETF).
In January 2018, the SEC then issued a bulletin outlining its concerns around approving an ETF.
As the cryptocurrency market swells and the phenomenon itself continues to gain acceptance by the global population. This growing adoption offers leverage to exchanges like CBOE and project developers for regulators to lighten up and allow things to grow.
The SEC’s primary concerns center on shortcomings in the current investor safety net as well as market fragmentation. As with other regulators from across the globe, the SEC is struggling to meet all parties’ desires while remaining true to its mandate of investor protection.
In part because cryptocurrencies are a new, ill-defined asset class for the traditional trading floor and due to the hysteria that accompanied bitcoin’s meteoric rise in December 2017, the SEC is erring on the side of caution.
The primary task of many regulatory agencies appears to be discovering whether existing legislation can govern digital currencies. Should that not be possible, the primary order of operations would be finding a novel method to get a leash around the neck of this unpredictable new financial instrument.
Concannon’s letter saw him mention that, although still young, Bitcoin commodity markets “are developing quickly,” which he also noted as promising for the prospects of future exchange-traded products.
Market Sentiment Will Win Out
As lawmakers grapple with trying to balance consumer and investor rights with the protection of those very consumers against security abuses, players like CBOE are diplomatically applying soft pressure on the SEC to relax on the issue of virtual currency trading.
“While the the current Bitcoin futures trading volumes on CBOE Futures Exchange and CME may not currently be sufficient to support ETPs seeking 100 percent 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.”
The CME chief also expressed his view of markets for gold and national currencies as “probably more fragmented” than the cryptocurrency markets. “There are a lot of venues to access currency markets,” he noted.
“While CBOE shares many of the concerns raised in the Staff Letter,” Concannon concluded, “we believe that the vast majority of these concerns can be addressed within the existing framework for commodity-related funds related to valuation, liquidity, custody, arbitrage, and manipulation.”