VanEck, a revenue administration business, has responded to the SEC’s problems in excess of bitcoin exchange-traded funds (bitcoin ETF) in a letter to the regulator made public on the agency’s internet site.
Addressed to Dalia Blass, director of the SEC’s division of expenditure administration, the letter tackles the 5 points of importance regarding the SEC’s preceding conversation with the sector, specifically: valuation, liquidity, custody, arbitrage, and probable manipulation.
On this issue of valuation, the company states that it does not see valuation as a “novel issue” for a futures-based bitcoin ETF because it is already a common practice to use futures to build an investment profile in an asset.
The valuation of such contracts, as mentioned by VanEck, is a well-established practice, with more than 100 exchange-traded products currently listed on U.S. exchanges basing their value on futures contracts. In the company’s opinion, prices from CBOE and CME are enough to adequately determine an ETF’s net asset value (NAV).
Responding to worries about the proposed ETF’s liquidity, VanEck factors out that the bitcoin sector is very liquid, with a regular trading distribute of lesser than five foundation points. The company also mentions that it has no intention for its proposed ETF to spend in physically-settled bitcoin futures contracts need to they come to be offered.
Moving on to custody, VanEck restates that they do not address the concerns raised in the Staff Letter regarding the lack of current arrangements for a fund to hold digital assets directly consistent with the 1940 Act requirements.
As they describe,
“We are working with market participants regarding arrangements to satisfy the requirements applicable to holding bitcoin directly, but do not intend for the proposed ETF to do so (including as a result of settling physically-settled futures contracts) until such arrangements are viable.”
Talking on the issue of arbitrage trading, VanEck’s letter states that the diversified, decentralized characteristic of bitcoin allows for arbitrage investing because of price-differentials and inefficiencies across distinct trade platforms.
According to VanEck, bitcoin marketplaces are not considered to be more risky than gold miner shares or comparable equities.
While talking about the company’s opinion on risks with the ETF, a statement 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.
On concluding the letter the company stated that
We believe that our proposed ETF will operate consistent with the rules and requirements of the 1940 Act. Further, by offering investors exposure to bitcoin through a regulated investment product, we believe the proposed ETF will be consistent with the Commission’s mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
Here is a link to the entire letter.