Another eventful week in the world of crypto! Was not able to comment on everything so will catch up on the rest next week.

Enjoy!

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ETF postmortem.

The Winklevii ETF has been disapproved while the SEC’s justification is interesting. The SEC stated concerns over the unregulated nature of bitcoin trading where most of the volume is outside of the United States with “little to no regulation governing trading, and thus no meaningful governmental market oversight designed to detect and deter fraudulent and manipulative activity.” As Matt Levin points out, this is strange as most commodity markets lack a single central authority that monitors trades. Jerry Brito from Coin Center identified the irony of the SEC not wanting to regulate the Bitcoin Market because it is not regulated:

“The Winklevoss ETF proposal was rejected because the SEC found that the significant markets for Bitcoin tend to be unregulated overseas markets that are potentially subject to price manipulation. But this creates a chicken and egg problem. How do we develop well-capitalized and regulated markets in the U.S. and Europe if financial innovators aren’t allowed to bring products to market that grow domestic demand for digital currencies like Bitcoin?”

As Levin argues, an ETF would have brought in institutional investors which would have introduced greater liquidity, market makers would have engaged in arbitrage, and investors would be incentivised to report price manipulation helping to mature this new market. Spencer Bogart of Needham & Company, who predicted the ETF had a 25% of passing, stressed that the SEC isn’t responsible for helping to develop emerging asset classes but to protect investors. Given the current state of bitcoin markets, there is just too much risk at this time for a Bitcoin ETF. With that said, this SEC ruling has provided more clarity around their concerns with Bitcoin allowing the next ETFs to get better prepared.

OSC issues warning.

The Ontario Securities Commission has issued a warning to companies that are using blockchain technologies to facilitate their financial product offerings stating that it may be subject to Ontario’s securities laws. The statement explicitly mentions that Initial Coin Offerings (ICOs) may be considered as securities and could trigger certain legal requirements. Some may be disappointed by this news as Canadian regulators were perceived as having adopted a principles-based regulatory approach to fintech and blockchain technologies, suggesting novel uses of these technologies, like ICO crowdfunding, may be exempt from traditional regulatory laws. Although the OSC encourages firms to contact them through their LaunchPad initiative to learn more about any regulatory risks, It’s clear that the initiative isn’t going to provide any total exemptions from existing rules.

Paradigm shifts don’t happen overnight.

Great article in Harvard Business Review by a three MIT researchers focusing on the technology. They highlight their belief in just how significant this technology is and compare its current state to that of the early days of the internet. They stress the importance of allowing the technology to develop and suggest that the immediate push by startups, VCs, and incumbents to commercialize it has lead to too much hype. They believe that the value-prop and use cases of blockchain technologies to drastically change as it matures and suggest a greater focus on research and experimentation are vital at this stage.

Opening the floodgates, inch by inch.

A nice piece this week from Tim Zagar of ICONOMI, a really interesting company in the space that is worth checking out. Zagar points out what a major endorsement this ETF has been, even though it was not approved. For the SEC to not have immediately rejected the listing and to have taken the time to study this new asset class is a significant vote of confidence. Zagar goes on to predict, like others have, that other ETFs will inevitably get passed. The Winklevii ETF listing will lead to greater interest among institutional investors in not only Bitcoin but other protocols as well — particularly Ethereum.

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