Bitwise has disputed the rationale advanced by the Securities and Exchange Commission (SEC) to dismiss the viability of utilizing CME Bitcoin Futures to discover Bitcoin’s price. It cites their use as adequate to facilitate surveillance-sharing agreements.
Bitwise confirmed submitting an amended filing to its previous Bitcoin spot ETF application on Monday, September 25. The amendment captures a new argument invalidating the explanations advanced by the Gary Gensler-led securities regulator to deprive US investors of the product.
Bitwise Deconstructs SEC’s Argument Against CME Bitcoin Futures
Bitwise demonstrated that the CME Bitcoin futures market can facilitate the spot market to discover Bitcoin’s prevailing exchange value. As such, it can serve market surveillance purposes for any regulated market regardless of size.
Bitwise chief investment officer Matthew Hougan stated in a post on X(formerly Twitter) that the well-designed scholarly studies demonstrated that CME is significant.
Bitwise is among the firms that submitted bids for Bitcoin spot ETF besides BlackRock, Ark Invest, and Wisdom Tree, among others. However, the applicants have suffered consistent denial by the securities watchdog. The regulator has previously alleged Bitcoin’s price volatility, price manipulation, and surveillance party.
SEC argued that the CME Bitcoin Futures market lacks the scale and correlation with Bitcoin’s spot market to counter potential manipulation on the exchange.
Bitwise illustrated that the futures market influences Bitcoin’s price, contrary to the SEC’s belief. Hougan cited a previous study conducted by Bitwise indicating that Bitcoin’s spot market could harbor fake trading volume. It implies that the Bitcoin futures market is larger. Hougan restated that the fake volume is significantly below 2019, though still substantial.
Bitwise Cites Scholarly Articles to Defend CME Futures in Spot Price Discovery
A review of CoinMarketCap’s dashboard for the leading crypto exchange captures a list of real entities, including Kraken, Coinbase, and Binance. The situation contrasts in 2019 when the leaderboard featured unknown names such as Coinbene.
Hougan also referenced the Bitwise study in 2021 that CME futures were responsible for 52.97% to 68.03% of Bitcoin’s price discovery. The findings supported the view that its potential to offer relevant surveillance, as stated by Bitwise.
Hougan indicated that Bitwise demonstrated self-evident reasons for CME utilization to resolve the price manipulation. Interestingly, the SEC fails to explain reasons for arguing otherwise.
Bitwise captured that the sponsor’s response only means half constitutes the uniform academic standard in each price discovery paper reviewed. The same applies to the scholarly articles cited by the SEC.
Bitwise asked the commission to state whether the standard to satisfy the initial prong should be higher than leads. Consequently, the commission should state whether the standard applied is nearly always or overwhelmingly leads.
Hougan emphasized that it was common for the futures markets to lead to the spot markets, particularly in price discovery in other asset classes.
The Bitwise executive emphasized that futures markets provide leverage, attracting traders to pursue profits guided by the information. Doing so offers an efficient mechanism to deploy the capital.
Hougan observes the suitability of futures markets in attracting higher institutional traders than participating retail traders. The former often portray an informational edge in their trades.
Bitwise Identifies with Grayscale Investment Arguments in Court
Hougan delved into the recent Grayscale Investment victory over the SEC after demonstrating to the court that the commission was arbitrarily denying the Bitcoin spot ETF application despite the approval of futures ETFs.
The Bitwise executive indicated that counsel representing Grayscale should use solid arguments regarding CME futures’ relationship in price discovery within the spot markets capability. Such is necessary if the SEC were to appeal the court ruling.
Hougan restated returning to the status quo and lamented that the existing filings fail to capture new arguments substantively. Also, the filings could not cite research addressing the SEC’s concerns until Bitwise amended the application.
Hougan revisited Grayscale’s argument that the future and spot Bitcoin markets have an extreme correlation. It implies that CME Bitcoin futures have pertinent connections to spot trading.
Hougan reaffirmed that the findings presented by Grayscale hardly contradict the research conducted by Bitwise regarding the futures market capability to lead the spot market prices. He explained that one market could have the capacity to lead another even when they portray high correlation.
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