All the BTC ETFs are declined by the SEC – now what?

The SEC declined the BTC ETF by Bitwise, and it was quite expected. I do think that eventually at some point there will be an ETF, but the problem with ETFs is that they need a stable market. The market the SEC needs to see and feel is exempt of manipulation.

Right now, the commission doesn’t really feel that way. Even though the manipulation stories are a little bit off, I do understand what they are seeing, especially with auto-deleveraging on Bitmex, for example, which has these scam wicks constantly.

scam candle wicks by Joel
Candlesticks with long wicks pop up on the chart when, in a short amount of time, the candle drops or rises very fast, which liquidates people

Jay Clayton, chairman of the SEC, said, ”We’re getting there, but we’re not there yet”. Then we saw SolidX pull their ETF a week later. Of course, they likely will resubmit this again, it does not mean they are stopping.

When will we probably see an ETF? I would say, mid to late 2020, and that’s really indicative of where the market goes, what new instruments come out and if we see a true bull market, void of manipulation in the SEC’s eyes.

It will happen when institutions come into the market providing stability. The SEC officers need to think, “OK, there is no one just dropping the market a $1000 because they have a lot of Bitcoin.”

The rating system developed by the crypto exchanges

I find it really interesting that top cryptocurrency exchanges, including Coinbase, Kraken, and Bittrex, created their rating system. By the way, all of these venues are from the United States and they said Ripple (XRP) is a security, even after the UK authorities said it was not. This was interesting, to say the least – an exchange is not the SEC. 

Exchanges do no wield any power, but usually do have ex-SEC employees on staff as well as lawyers and financial analysts. Of course, their opinion is their own and ultimately the choice is for the SEC to make, but it shows that exchanges are doing their due diligence and being transparent about the projects they onboarded. They seem to be unbiased as well, because they are admitting that some projects on the exchanges are securities.

Overall, I would say, the exchanges are doing this to satisfy the regulatory authorities, they want to address this concern that exchanges list coins that shouldn’t be there, as they are securities, not utility tokens people are investing in for profit.

EOS $24-mln fine

EOS raised $4 bln before any regulatory framework was created and before the SEC even knew what they wanted to do. Out of the $4 bln that EOS raised they only got a fine of $24 mln, which is equivalent to %0.06 of the whole entire raise.  

Now, looking at Blockstack as another example. 

They had that regulatory framework to do the first legitimate raise. They paid $2 mln for a $24-mln raise. If you examine those numbers, they paid nearly 10% of the whole entire raise to satisfy the regulations set forth by the SEC!

So, who won in this situation? EOS did. 

The SEC may have thought, “Whatever EOS did, we didn’t agree with it – with some of it, or all of it. But because you’re an established business and we can’t completely shut you down, we’re going to fine you this much.” And the guys from EOS went, “OK, that’s fair, there was no framework, so we’ll just pay the fine.”

The same thing happened to that Russian ICO website, ICO Rating, that paid around $270,000 to the SEC to settle charges. In 2017, when there was no regulatory framework, the firm produced research reports and ratings. They had to pay the fine because they failed to disclose that certain issuers paid them to be rated.

At the end of the day, the way I look at it, for EOS it is huge win, because they only paid 0.06%. The amount of money they raised and how big they became – it’s basically peanuts for them, or a slap in the wrist.  

I expect the SEC is going to come down on some other companies that did raises that were either securities or violated any rules – this is just the start. It’s not going to be good for some projects out there, but I understand why the SEC are doing this. They want to clean up the space. Going back to the ETF question, that’s the only way they will start considering ETFs in my opinion.

They want to make sure in those decentralized, distributed trustless societies we see in the cryptocurrency space, there are some regulatory oversights in place and people stop getting scammed. 

I mean, it’s not possible to completely remove the scams, because it still happens even with the traditional IPO system. But they are trying to remove that opportunities out there leading to them.

When rules are being followed, the decentralized ecosystems that we know today will be better for everyone as well as giving more opportunities for things like ETFs in the future.