Bitwise Asset Management is one of the ETF applicants in the US, that has worked primarily on due diligence this year. In March, it released a report highlighting a grim truth about the cryptocurrency markets: the ‘fake reported volume on Exchanges.’ However, it bore a silver lining to it, as it was revealed that past the fake volume cloud exists a perfectly fine ‘free-market’ of cryptocurrencies.
Bitwise has submitted another report to the SEC (Securities Exchange Commission) suggesting that the trading on ‘selected’ Cryptocurrency Exchanges is small but efficient enough to build an ETF on it.
Ten Exchanges with Real Volume
Consistent with its previous report, the new research pointed out that the reported volume on only ten Exchanges was published correctly. All the other Exchanges were reporting fake ‘non-economic’ data to gain ranking on CoinMarketCap. This attracts more customers, and the management charges hefty fees for listing as well. Nevertheless, ‘wash trading’ is non-economic; i.e., it does not affect the price of the asset.
Moreover, the spot Exchanges mentioned in the report are also running a closely watched price environment in which manipulation is not possible because of Bitcoin’s digital nature which provides an opportunity of immediate action which brings the markets to parity again.
“Arbitrage On Exchanges Has Improved Significantly” It also included the fact that, “The fungibility and transportability of bitcoin create a nearly perfect environment for arbitrage between different trading venues.”
Bitcoin Futures Trading
The report also highlighted that Bitcoin Futures Trading market is significant compared to the actual spot trading volume on Exchanges. Moreover, the futures price in most esteemed markets draws their index from these trusted ten Exchanges mentioned above. Furthermore, compared to the actual spot trading volume, the trading volume of Bitcoin Futures is around 30% of the spot volume.
“The CME Futures Price Is Derived From Exchanges That Contribute To The Bitwise NAV Methodology”
The Exchanges include Bitstamp, Coinbase, itBit, and Kraken. Moreover, it went to establish a global relevance of the price on Exchanges and regulated markets outside the US. Amun AG is a Swiss-based firm that has released four crypto-based Exchange Traded Product on SIX Exchange.
…Every regulated crypto product that has launched –whether in the U.S. or Europe – has drawn prices either entirely from or, in the case of XBT Provider, almost entirely from a subset of the 10 exchanges highlighted in this presentation as “real.”
Bitwise ETF Proposal
The findings above statistical models suggest that the Bitcoin market is healthier and more mature than the common perception. Moreover, according to the SEC guidelines, a small volume doesn’t concern the approval as long as it is secure. The two assurances that SEC needs for ETF approval are:
1) Unique Resistance: That the bitcoin market is uniquely resistant to market manipulation and fraudulent activity
2) Surveillance Sharing: That the listing exchange has entered into a surveillance sharing
agreement with a regulated market of significant size
According to this report, Bitcoin markets satisfy both these conditions. Furthermore, the Bitwise ETF will derive its price from the ‘ten’ Exchanges itself.
“We draw prices from 10 crypto exchanges representing substantially all of the trading volume in the spot bitcoin market.”
Last but not least, the report also cited that contrary to popular belief, the ETF would not have as tremendous an impact on the market. While the Bitwise acknowledged the fact that the market could be overwhelmed with the launch of an ETF, it will be absorbed soon by the market.
“Over the course of the year, a spot market that is trading $273 million per day can easily absorb $3 billion in total inflows… Today, those platforms [ETF trading Platforms] have detailed due diligence and approval processes that smooth out asset growth.”
Do you believe that Bitwise has built a strong case for ETF approval the next time around? Please share your views with us.
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