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Jake Chervinsky Profile picture
@jchervinsky
Aug 23, 2018 • 11 tweets • 3 min read Twitter logo Read on Twitter
0/ The SEC killed *all* of the pending derivative-backed #bitcoin ETFs today. Why did they do it, and what does it mean?

Thread.

1/ All eyes were on the SEC this week, as the final deadline to approve or reject the two ProShares bitcoin ETFs was tomorrow, August 23.

Most of us on #cryptotwitter were expecting the ETFs to be rejected.

2/ But we weren't expecting the SEC to also reject *seven* other derivative-backed ETFs proposed by GraniteShares & Direxion. Those ETFs weren't due for final decisions until September 15 and 21 respectively.

The only ETF left now is the VanEck/SolidX commodity-backed offering.
3/ So why did the SEC reject all these ETFs?

Basically, the decision came down to the risk of market manipulation & fraud. The SEC can only approve an ETF that is "designed to prevent fraudulent and manipulative acts and practices." In the SEC's view, these ETFs were not.
4/ The SEC relied heavily on last month's denial of the Winklevoss ETF appeal, which found that:

- bitcoin markets are not inherently resistant to manipulation
- to deter manipulation, exchanges need a surveillance-sharing agreement with a regulated market of significant size
5/ ProShares & the other ETFs tried to solve this problem by pricing bitcoin through the well-respected, regulated CBOE & CME futures markets.

In theory, this gave derivative-backed ETFs a better chance of approval than commodity-backed ETFs, which use unregulated spot markets.
6/ The SEC wasn't impressed, finding that the bitcoin futures markets aren't "of significant size" as required by the Winklevoss denial.

They even cited #cryptotwitter favorite Chris Giancarlo, CFTC Chairman, who characterized the volume of the futures markets as "quite small."
7/ As a result, the SEC found that CBOE & CME wouldn't provide enough info about the "identity of market participants" on unregulated spot and derivative markets "where a substantial majority of trading" occurs.

They didn't actually cite BitMEX or Bitfinex, but . . . you know.
8/ They also repeated the concern that most trading "occurs on unregulated venues overseas that are relatively new and that generally appear to trade only digital assets."

This makes me wonder if they'll approve *any* ETF before spot markets are regulated, which may be a while.
9/ Long story short, this isn't a great sign for the bitcoin ETF bulls. The SEC's demand is clear. They want to see:

(i) a surveillance-sharing agreement . . .
(ii) with a regulated market . . .
(iii) of significant size.

That seems like a tough request to satisfy in 2018.
10/ On the other hand, today's decision gives valuable guidance to the folks at VanEck & SolidX. I'm excited to see what @gaborgurbacs & co. come up with.

The only ETF deadline left, and the only one most of us cared about in the first place: VanEck/SolidX on September 30.

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More from @jchervinsky

Jake Chervinsky Profile picture
Sep 26, 2018
0/ A quick summary of today's ruling in the My Big Coin case.

In short, a federal court says *all* digital currencies are commodities & the CFTC has jurisdiction to prosecute fraud & manipulation in crypto. In my view, the ruling is deeply flawed.

Thread.nytimes.com/reuters/2018/0…
1/ Background:

According to the CFTC, the defendants sold a crypto called "My Big Coin" by falsely claiming it was backed by gold (it wasn't).

They also pretended it was actively traded on exchanges (nope) & made up arbitrary prices to raise $6 million from defrauded investors.
2/ The CFTC filed a lawsuit alleging violations of the anti-fraud & anti-manipulation provisions of the Commodity Exchange Act ("CEA").

The defendants filed a motion to dismiss arguing the CEA doesn't apply because My Big Coin isn't a commodity, so the CFTC has no jurisdiction.
Read 16 tweets
Jake Chervinsky Profile picture
Sep 20, 2018
0.0/ ETF FAQ.

My answers to some common questions about the SEC & the approval process for #bitcoin & #crypto ETFs. If you have a question I didn't address, feel free to ask here & I'll add on.

Thread.
1.0/ Q: "Who decides whether to approve or deny an ETF?"

The initial decision is made by SEC staff in the Division of Trading & Markets. If the staff denies an ETF proposal, the ETF sponsor can file an appeal, which will be decided by all of the SEC Commissioners.
2.0/ Q: "What's the process & timeline for the SEC to decide on an ETF?"

When a proposal is filed, the SEC publishes it in the Federal Register (the government's official journal) & solicits comments from the public. It then has 45 days to approve, deny, or delay a decision.
Read 30 tweets
Jake Chervinsky Profile picture
Sep 11, 2018
0.0/ A lot of #crypto news today from the securities enforcement world:

- DOJ goes to trial on ICO-related securities fraud charges
- SEC charges broker-dealer & hedge fund with securities violations
- FINRA charges broker with fraud & dealing unregistered securities

Thread.
1.0/ Let's start with DOJ. Today's news relates to a federal criminal case in the Eastern District of New York: United States v. Maksim Zaslavskiy.

Zaslavskiy was charged in November 2017 on three counts of securities fraud in connection with two ICOs: "REcoin" and "DRC."
1.1/ DOJ says Zaslavskiy lied to investors when he sold these ICOs.

According to the indictment, he told investors that both coins were backed by real world assets: he allegedly claimed REcoin was backed by real estate & DRC was backed by diamonds.
Read 22 tweets
Jake Chervinsky Profile picture
Sep 5, 2018
0/ A few thoughts on @ShapeShift_io's decision to start collecting users' personal information through a mandatory membership program.

In short, this is how regulators silently invade crypto.

Thread.
1/ Historically, ShapeShift has enabled users to convert between a variety of digital assets with total anonymity.

The service reflected the principles of its CEO, @ErikVoorhees, a true bitcoiner who speaks passionately about financial privacy & separating money from state.
2/ The thing is, the US government doesn't exactly agree with Erik's point of view.

Modern enforcement agencies rely heavily on financial surveillance. The concept of anonymous crypto exchanges & transactions is a genuine nightmare for regulators & investigators.
Read 18 tweets
Jake Chervinsky Profile picture
Aug 17, 2018
0/ The SEC's final deadline to approve or deny the two ProShares Bitcoin ETFs is next Thursday, August 23 (sec.gov/rules/sro/nyse…). My thoughts on two questions:

- How will the SEC make its decision?
- Would these ETFs even be good for bitcoin?

Thread.
1/ In December 2017, the NYSE Arca exchange filed a proposal with the SEC to list and trade two ETFs issued by ProShares:

- ProShares Bitcoin ETF
- ProShares Bitcoin Short ETF

Both would use derivatives (futures, options, and swaps) to track bitcoin's daily price movements.
2/ These ETFs are important: they're the first ones that the SEC will approve or deny in 2018 & will set the stage for others in coming months.

Of course, nobody knows what the SEC will decide, but we can use their recent statements to figure out what factors they'll consider.
Read 17 tweets
Jake Chervinsky Profile picture
Aug 14, 2018
0/ Let's talk about @Ripple litigation & the slow journey toward answering the question: "is #XRP a security?"

Before you ask, I don't plan to discuss my own opinion on this issue. I'd rather leave that to the courts, as I'll explain here.

Thread.
1/ Ripple is currently defending four cases in California courts:

- Two state cases in San Mateo County, brought by plaintiffs Zakinov & Oconer
- Two federal cases in the Northern District of California, brought by Coffey & Greenwald

All four cases are securities class actions.
2/ The plaintiffs allege basically the same thing: XRP is a security and Ripple violated state & federal law by failing to register it before offering, promoting, and selling it to retail investors.

If you want more details, read the Zakinov complaint:
coindesk.com/another-invest…
Read 19 tweets

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