CFTC Commissioner on ETF: Bitcoin Index "Not Susceptible to Price Manipulation"

Brian Quintenz, Commissioner at the Commodities and Futures Exchanges Commission (CFTC), has taken the Securities and Exchanges Commission (SEC) heads on in regards to their rejection of a bitcoin ETF due to potential price manipulation.

“Our jurisdiction over those [bitcoin futures] contracts requires that they not be readily susceptible to manipulation,” Quintenz said.

Susceptible, he emphasized, because with enough resources anything can be manipulated. Quintenz says:

“There are mathematical ways through a settlement index to design a contract where even if there isn’t a lot of liquidity on one exchange referenced, the index itself is not readily susceptible to manipulation.

For instance, in one of the bitcoin futures contracts, they settle it to multiple volume weighted average prices in five minutes increments over the course of an hour across multiple exchanges.

So if one participant wanted to manipulate that settlement index, they would have to have the majority of volume on multiple exchanges in multiple five minute periods.

Could they do it? Maybe. Would we know about it? Immediately.”

Lots of Markets Not Regulated

SEC Commissioner Hester Peirce, sitting at the same panel this Tuesday at the Bipartisan Policy Center, said on the same matter:

“At the SEC we have been unwilling to sign off on a bitcoin ETF thus far. My concern is that it looks a bit like a merit based approach, judging the underlying bitcoin market and saying we don’t think these are regulated enough.

You know, there’s lots of markets that aren’t regulated, but we nevertheless build products on top of them. So I think we have to be very careful with that kind of reasoning.”

Quintenz said the CFTC has a self-certification process where they don’t have to approve a new offering, but they have to be sufficiently satisfied to not disapprove it.

One aspect of the process is whether an offering is susceptible to price manipulation.

CFTC has approved CME bitcoin futures and CBOE bitcoin futures. In both cases they were satisfied of no reasonable risk of price manipulation without them immediately knowing of it.

SEC’s main argument so far against approving a bitcoin ETF has been that it is susceptible to price manipulation. CFTC, however, is saying it isn’t if it is based on a bitcoin index.

The Year of the Bitcoin ETF?

A new bitcoin ETF application has been filed, with a torrent of them of all sorts of shapes and sizes now going through the process.

“A lot of that authority is delegated to the staff so then it’s a question of whether it gets pulled up to the commission or not,” Peirce said.

Suggestions are at least one bitcoin crypto ETF will be approved at some point. When, is the question.

Momentum appears to be building recently after it was revealed a number of exchanges had entered surveillance agreements, as was required by SEC, and after it was show bitcoin futures are now handling far more volumes than spot exchanges.

This statement by the CFTC commissioner that the bitcoin index is not susceptible to price manipulation may in addition put more pressure on SEC to green-light a bitcoin ETF now that the commission has finally tilted republican.

So there has never been a time when a bitcoin ETF has looked less far fetched, but when exactly will SEC give the go-ahead, remains to be seen.


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