Professor to SEC: Bitcoin Funds 'Like a Penny Stock or Ponzi'

Computer science professor Jorge Stolfi has angered bitcoiners with his submission to the SEC regarding a proposed Bitcoin investment fund.



Also read: SolidX Files to Become First Bitcoin ETF on NY Stock Exchange

As part of its approval process to be listed on the Bats BZX Exchange, details of the COIN ETF were published today in the US Federal Register. Any interested parties have 45 days to submit an opinion to the US Securities and Exchange Commission.

To be listed, BZX Rule 14.11(e)(4), which covers commodity-based trust shares, needs to be amended.

Stolfi Warns SEC Against Bitcoin Investment

Recommending against any legitimizing of bitcoin as an investment vehicle, Professor Stolfi compared Bitcoin both to a “penny stock,” “shares for a company with no assets, no products and no staff,” and a “pure ponzi scheme like Madoff’s fund.”

The Brazilian academic, who is a full professor at the University of Campinas and a former chairman of its Institute of Computing, is known as a critic of Bitcoin and cryptocurrencies in general.

Unlike stocks and bonds, he wrote, investing in Bitcoin does not pay dividends and is not grounded in any fundamentals.

Investment in bitcoin does not contribute to mankind’s real wealth or well-being: it does not finance the creation of any material goods or real services. On the other hand, it has ruined many naive investors who have been induced to put their savings into it, by spurious promises of fantastic price increases in some undefined future.

The very price volatility that draws investors to Bitcoin precludes its use as a proper currency, Stolfi said, making its only purpose for existing that of a speculative token.

Risks & Potential Manipulation

That bitcoin can be spent by anyone in possession of the right private keys, without any form of identity required to establish ownership, “creates a security risk that is impossible to quantify.”

In a postscript aimed more specifically at the ETF plans, Stolfi said low liquidity at the Gemini bitcoin exchange created an opportunity to manipulate the price of bitcoin in order to increase the value of the ETF.

The only purpose for the ETF is to attract institutional investors (such as retirement funds) who would not otherwise participate in bitcoin, does not add any “productive mechanism” to bitcoin, he concluded.

Among other topics, Stolfi has previously written articles opposing DRM and Big Entertainment’s influence on the technology sector, supporting the work of Julian Assange and Wikileaks, and railing against overzealous email spam filters.

His SEC submission echoes points he made in a 2013 blog post titled “Cuidado com Bitcoin!” (Beware of Bitcoin). It appears he has not wavered from his initial views in the three years hence, despite the evolution of Bitcoin from a curious experiment to a burgeoning fintech industry.

Reaction to the Criticism

Some in Bitcoin may actually agree with some of those points, or question why Bitcoin needs an exchange-traded fund (ETF) or institutional investors. Stolfi’s comparison of bitcoin to a penny stock and Ponzi scheme, however, along with the common criticism that its value is based on nothing, is riling Bitcoin supporters.

Some pointed out that such criticisms could equally be directed at gold, yet the metal is at the foundation of several legitimate instruments. Bitcoin’s cutting-edge nature also makes it difficult to categorize precisely, inviting comparisons to any number of existing instruments and technologies – both good and bad.

Bitcoin Investment Funds Growing

The publication and public submissions process is a vital step towards the ETF gaining approval to be listen on Bats Global Markets’ BZX, one of two exchanges it operates in the US. Bats is the third-largest exchange operator in the country.

The SolidX Bitcoin Trust has applied to the SEC to allow listing on the New York Stock Exchange, while COIN ETF also plans to launch on Bats BZX. Grayscale’s Bitcoin Investment Trust, by Barry Silbert’s Digital Currency Group, became the world’s first bitcoin-based investment fund in 2015 on the OTC Markets Group’s OTCQX exchange.

Does Professor Stolfi make any valid points about bitcoin? Do you think it would likely sway the SEC’s opinion in bitcoin investments?

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