Cboe’s recent submission to the SEC to apply to list the ‘first’ bitcoin ETF (at least in the US) is a fascinating read in terms of the regulation of crypto.
Some important quotes and notes I jotted down:
- Exchanges: whereas the issuer primarily prefers to obtain supply OTC, if for any reason it cannot, it will buy on regular exchanges with Coinbase and Kraken mentioned, amongst others. “All of these exchanges follow AML and KYC regulatory requirements.” - despite not being ‘regulated’ in the traditional sense, they are clearly happy with the legality and security of dealing with these parties.
- Physical security: “The Trust will utilize bitcoin private keys that are generated and stored on air-gapped computers. The movement of bitcoin will require physical access to the air-gapped computers and use of multiple authorized signers. For backup and disaster recovery purposes, the Trust will maintain cold storage wallet backups in locations geographically distributed throughout the United States, including in the Northeast and Midwest.” This is widely accepted best practice.
- Insurance: “the Trust will maintain comprehensive insurance coverage underwritten by various insurance carriers. The purpose of the insurance is to protect investors against loss or theft of the Trust’s bitcoin. The insurance will cover loss of bitcoin by, among other things, theft, destruction, bitcoin in transit, computer fraud and other loss of the private keys that are necessary to access the bitcoin held by the Trust.” As well as having “the goal of maintaining insurance coverage at a one-to-one ratio with the Trust’s bitcoin holdings valued in U.S. dollars such that for every dollar of bitcoin held by the Trust there is an equal amount of insurance coverage.”
- Manipulation: “there is not inside information about revenue, earnings, corporate activities, or sources of supply; it is generally not possible to disseminate false or misleading information about bitcoin in order to manipulate; manipulation of the price on any single venue would require manipulation of the global bitcoin price in order to be effective; a substantial over-the-counter market provides liquidity and shock-absorbing capacity; bitcoin’s 24/7/365 nature provides constant arbitrage opportunities across all trading venues; and it is unlikely that any one actor could obtain a dominant market share.”
- Intended audience: “the Sponsor expects that the Shares will be purchased primarily by institutional and other substantial investors (such as hedge funds, family offices, private wealth managers and high-net-worth individuals), which will provide additional liquidity and transparency to the bitcoin market in a regulated vehicle such as the Trust. With an estimated initial per-share price equivalent to 25 bitcoin, the Shares will be cost-prohibitive for smaller retail investors while allowing larger and generally more sophisticated institutional investors to gain exposure to the price of bitcoin through a regulated product while eliminating the complications and reducing the risk associated with buying and holding bitcoin.”
- Derivatives: “For investors simply wishing to express an investment viewpoint in bitcoin, investment through derivatives is complex and requires active management and direct investment in bitcoin brings with it significant inconvenience, complexity, expense, and risk. The Shares would therefore represent a significant innovation in the bitcoin market by providing an inexpensive and simple vehicle for investors to gain exposure to bitcoin in a secure and easily accessible product that is familiar and transparent to investors.” - this is pretty consistent with our position on derivatives in that investment need not be complicated or difficult to manage. Therefore, contrary to every other tube ad, using eToro is not investing in crypto.
A long post there - but the original is 52 pages!
To see systemically important institutions discuss bitcoin with such positivity and acceptance (and post-‘bubble’ pop) is very meaningful, in my view.
Exciting times!