In a recent letter to the regulator released on the agency’s website, money management firm VanEck has reacted to the SEC’s worries regarding bitcoin exchange-traded funds.
Sent to Dalia Blass, director of the SEC’s division of investment management, the letter addresses the five points of order from the SEC’s earlier communication with the industry, that is valuation, liquidity, custody, arbitrage, and potential manipulation.
In terms of valuation, the firm noted that it does not regard valuation as a “novel issue” for a futures-based bitcoin ETF given that it is already a norm to use futures to develop an investment profile in an asset.
According to VanEck, the valuation of such contracts is a well-grounded practice, with over 100 exchange-traded products already listed on U.S. exchanges determining their value on futures contracts. For the company, prices from CBOE and CME are sufficient to decide an ETF’s net asset value (NAV).
On the issue of liquidity, VanEck noted that the bitcoin market is a very liquid one, with an average trading spread of less than five basis points. It went ahead to state that the bitcoin futures market has been successful against the physical bitcoin market, with an overall volume of the CBOE and CME reaching $200 million.
Responding to concerns relating to custody, VanEck pointed that its ETF will not invest in physically settled bitcoin contracts, however, it could participate with market players to decide on a solution to satisfy direct custody requirements. It notes that until these are put in place, the status quo remains the same.
With regards to arbitrage, VanEck’s letter points out that the vast decentralized nature of bitcoin exchange activities enables arbitrage trading because of the differences in price in various exchange platforms.
For VanEck, bitcoin markets are not greatly more stable compared to gold miners stocks or likened to equities.
A piece reads that:
“We believe that neither the volatility nor the current volume in the bitcoin futures market will inhibit the creation and redemption process by authorized participants and that these creations and redemptions will keep the proposed ETF’s market price in line with its NAV.”
The company’s opinion regarding potential manipulation and other risks is that they are lessened by its nature due to its nature as a regulated product traded on a US exchange.
An excerpt from the letter reads:
“While one cannot rule out manipulation in the underlying spot market, we believe that, due to the diversified ownership and volume of trading, the market does not have major, structural vulnerabilities. Therefore, the Commission’s increased enforcement and regulatory actions can reduce the number of bad actors in a basically sound market.”