Here’s why the SEC continues to reject spot Bitcoin ETF applications

A spot-based BTC ETF is still a dream for crypto investors, but data shows that the U.S. Securities and Exchange Commission has a good reason not to give it the green light.

Trying to get a Bitcoin spot exchange traded product (ETP) from the U.S. Securities and Exchange Commission (SEC) isn’t the first time they’ve turned down proposals. On January 25, the Cboe BZX Exchange tried to list the Fidelity Wise Origin Bitcoin Trust as a Bitcoin ETP, but that didn’t work, either, as it did before.

This is what the SEC said in a letter it sent out on Feb. 8. The exchange hasn’t met its responsibility to show that the fund is designed to stop fraudulent or manipulative acts as well as to protect investors and the public interest.

Because the SEC hasn’t approved Bitcoin spot ETPs, they don’t exist in the U.S. market. However, they do exist in the European market. A person who looks at the prices of these ETPs that are traded in the European market could figure out if fraud and manipulation are possible or not.

Examine whether the SEC’s fears that people are being deceitful or manipulative are true. This article will look at the prices of three European ETPs and the Bitcoin spot price history from 18 different exchanges to see if there are any significant price differences that could lead to market manipulation.

The SEC’s main concerns are:

The SEC had two main issues with BZX Exchange’s plan from a technical point of view:

  1. Data or analysis did not back up the claim that arbitrage across the different Bitcoin platforms helps keep global Bitcoin prices in line with each other, which makes it more difficult for people to manipulate prices and eliminates any cross-market differences in prices. In terms of how closely Bitcoin prices are aligned across different trading venues, there is no way to tell how quickly price discrepancies can be fixed.
  2. It doesn’t look like the Exchange can show that its proposed method for making a new index would make the new ETP more resistant to fraud or manipulation. In this case, the exchange hasn’t looked into how Bitcoin prices on spot platforms that aren’t on the index’s constituent Bitcoin platforms might affect the Index’s prices.

History from Google Finance is used to see if there are problems with the ETPs listed in European markets and if there are ways to manipulate them. The three ETPs listed on SIX Swiss Exchange are compared to the Bitcoin spot price from exchanges (data from Cryptowatch).

  • WisdomTree Bitcoin ETP (BTCW-USD)
  • 21Shares Bitcoin ETP (SWX:ABTC-USD)
  • Coinbase Physical BTC ETP (SWX:BITC-USD)

Correlation between Bitcoin ETPs and the spot price shows that there are price differences.

BZX Exchange says that the index will be based on the volume-weighted median price (VWMP) from five exchanges over the last five minutes. Bitstamp, Coinbase, Gemini, itBit, and Kraken are the exchanges.

Bitstamp, Coinbase, Gemini, and Kraken are four of the five exchanges that make up the index. They are used in a very simple and basic way to try to figure out how the index is calculated.

In all charts, the daily percentage change (or daily return) is used to make it easier to see how the Bitcoin ETP price scale is different from the Bitcoin spot price.

The graphs below show the daily return comparison between each of the three ETPs and the average Bitcoin spot price from the four exchanges that used the volume-weighted median method to figure out the average spot price for each day.

There is a graph on the left that shows how closely the ETP price is linked to the spot price. A blue dash line should cover all the points if they are aligned. There is a chart on the right-hand side that shows how much money you made each day and how much you lost each day.

Comparing WisdomTree ETP and the spot, most of the points in the scatter plot are in the range of +/-5 percent. There are, however, some big price differences outside this range. There was one day during the three-month period when the daily difference between the ETP and the spot price (blue dash line) was above 10%.


Also, it’s interesting to note that the volatility of ETP price percentage change tends to be higher than that of the spot rate of change. Coinbase Physical Bitcoin (blue line) and Bitcoin spot (pink line) are shown in the graph below. The blue line shows how much Coinbase Physical Bitcoin could change, while the pink line shows how much Bitcoin spot could change.


Another Bitcoin ETP is also more volatile than the spot. The correlation with the spot is also lower than that of WisdomTree (67%) and Coinbase Physical Bitcoin ETP (62%). (66 percent ).


Cross-market price differences between the ETP price and the Bitcoin spot price from exchanges are shown in the price comparisons above. The price differences have not been resolved quickly enough to stop people from acting in a way that they don’t want to do.

However, it is important to point out that this is only a very rough comparison based on the data from each day, not an exact match. Exchange-traded products don’t trade around the clock like crypto spot prices do; they only trade during the regular trading hours of the Exchange, which are from 9:30 a.m. to 4:00 p.m. This could be why the prices are different.

Also, in practise, the index price will be calculated a lot more often. For example, the BZX Exchange proposal says to use the last five minutes of data from five exchanges to calculate the index price and update the Intraday Indicative Value (IIV) per share every 15 seconds. The analysis done here only looks at daily aggregated data to figure out the index price, which might not be the same as the index price if you looked at high-frequency data.

In the graphs below, you can see that the price differences between ETPs and the spot price can be seen, but the differences between the ETPs themselves are much smaller.


There is a good chance that all the ETPs on the same exchange use the same frequency and cut-off time to calculate their prices, so the price differences between them are less. There may be a reason why there is a big difference between the Bitcoin ETP and the Bitcoin spot price: the frequency and the cut-off time used in the method of calculating the ETP index, which can’t be replicated exactly the same in this study.

Spot price differences between exchanges are very rare.

First, the SEC wanted to know how close Bitcoin prices are to each other when they trade on different Bitcoin exchanges.

It looks like there aren’t a lot of differences in the exchange prices between BTC and the US dollar between 18 different exchanges that Cryptowatch looked at. Coinbase, Gemini, and Bitstamp are all compared to Kraken to show how close the prices are to each other. The correlation between each pair is very close to 100%, which shows how closely the prices match up.

People who run spot platforms that aren’t part of the index are also a concern for the SEC, because they could have an impact on the price and manipulate it. There could be market manipulation if Bitcoin prices on other platforms are very different from the prices on Bitstamp, Coinbase Gemini, and Kraken, which are the four main platforms.

See if there are differences in prices on different platforms. The graph on the bottom right shows how prices on four platforms are compared to prices on 18 exchanges as a whole. This way, you can see if there are differences in prices. Nearly straight lines show there is almost no difference between them. When you buy or sell Bitcoin on spot platforms, you don’t have to worry about big price differences. The prices are very close to each other on different Bitcoin trading platforms.


People who try to manipulate the prices on different exchanges will have a hard time because of how similar the prices are each day. Price manipulation could happen during the day, but this analysis can’t see it because it doesn’t have enough high-speed intraday data.

Based on the prices of three ETPs on the SIX Swiss Exchange and the Bitcoin spot prices from 18 exchanges, it looks like there are price differences between ETP and spot. This could lead to people manipulating the price of the ETP index, even though the applicants say that the complex index calculation method stops them.

The SEC’s fears about fraud and manipulation seem to be based on the huge price differences between these European ETPs and the spot price of gold. However, the daily data frequency used in this analysis could be to blame for the difference. This is because high-frequency data is used in real life.

On the other hand, there aren’t any big price differences between different places to buy and sell Bitcoin. The spot markets from these venues are more decentralised and less regulated than traditional stock exchanges, but it would be very hard to manipulate prices on these platforms to make them rise or fall.

Because there are so many different types of crypto exchanges, it’s hard to prove that all of them are the same when it comes to price efficiency and similarity. It’s still a long way to go before the SEC will let them use ETP.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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