crypto strategy

Is the US SEC trying to manipulate Bitcoin supply?

When CME Group launched the first Bitcoin futures contracts contract in 2017, the company’s Chairman Emeritus, Leo Melamed, said he would “tame” Bitcoin. Since then, several ETFs have been approved by the SEC. But as exchanges increased the supply of BTC by selling “paper bitcoin”, questions of market manipulation began to emerge.

Melamed Told Reuters at the time, “We’re going to regulate, make Bitcoin not wild, not wilder. We’re going to tame it into a regular-type trading instrument with rules.

The exchange-traded fund, or ETF, allows investors to buy an asset that tracks the price of Bitcoin. But without actually owning the underlying asset directly themselves. In the United States, these funds fall under the jurisdiction of the Securities and Exchange Commission (SEC).

Structured similarly to an IOU, an informal document acknowledging debt, the ETF takes the form of a paper that can be traded during the trading process. Observers wonder if the purpose of paper Bitcoin is to manipulate the underlying asset with the help of the SEC as a regulator.

Bitcoin Manipulation: Banks Want Control

“It’s the banks trying to take control, but it’s also the normal system they use,” James Crypto Guru, Founder and CEO of the crypto platform MagicCraftsaid BeInCrypto.

“In a way, he controls and manipulates. But people understand that they want bitcoin from the blockchain and over time their [banks’ BTC holding] the size will be much smaller than the overall market,” the trader and YouTube influencer said.

James Crypto Guru expects market manipulation issues to drive Bitcoin price lower in the near term. In the long term, however,[this will be] very good for adoption,” he added.

The second approved the first Bitcoin ETF that invests in futures contracts in October 2021. The Proshares Bitcoin Strategy exchange-traded fund launched on the New York Stock Exchange on October 19, becoming the first-ever Bitcoin ETFs in the USA.

Nearly $1 billion worth of shares changed hands on its first day of trading. Following the ETF’s approval, the price of Bitcoin soared to $64,124, a record high at the time. But Bitcoin has collapsed 75% since then, at $16,500 at the time of writing.

Crypto analyst Willy Woo said the Bitcoin futures ETF would be bad for retail investors because it favored institutional investors such as hedge funds.

“In my opinion, this will be an expensive way to hold BTC,” Woo tweeted then. “The exchange-traded fund effectively outsources the holding of Bitcoin to hedge funds through a chain of profit incentives,” he said.

Woo argued that a Bitcoin futures ETF has the “potential for price suppression and more volatility due to the dominance of futures contracts. It’s because he expects BTC Futures become more expensive relative to the spot price due to large long positions opened by hedge funds.

The gold standard

In the gold markets, it is common for ETFs to now lead the price. They are also used for price discovery, according to experts. This same practice seems to have been adapted to Bitcoin markets as well.

CME Group complaints that its Bitcoin futures contract will help investors “benefit from efficient price discovery in transparent futures markets.”

Crypto exchange CEO Serhii Zhdanov EXMO, told BeInCrypto that the introduction of Bitcoin paper should be looked at. “Financial market manipulation is a serious problem not only for crypto but also for other publicly traded assets,” he said.

“As far as CME is concerned, the SEC acts as a watchdog, which guarantees the assets Security. The creation and regulation of these assets must be transparent and understandable to investors. This gives them the certainty that their investment is secure.

BeInCrypto reached out to SEC Commissioner Hester Peirce, but she was unavailable for comment “due to business pressure.”

Chris Esparza, CEO of Vault Funding, said that the goal of Bitcoin futures is never to manipulate the underlying asset, even if it could happen. He then warned against potential scammers.

“The goal is to open up trading to more investors without having to physically manage the underlying asset. Unfortunately, it also allows people to trade things that are not in their possession,” said Esparza at BeInCrypto.

“The impact is great. When people can trade futures and Bitcoin without owning the physical asset. Paper Bitcoin can have a major influence on price when bought and sold.

Not all dark and catastrophic

Bitcoin’s main value comes from two things. First, unlike other crypto assets, BTC is truly decentralized. Second, its rarity, with a maximum supply of 21 million coins.

However, Bitcoin ETFs increase the supply of Bitcoin by selling Bitcoin paper. Investors do not have to hold BTC directly. Increasing the supply dilutes the value of the coin.

“So whether or not the goal is to manipulate the underlying asset, it certainly happens to some degree,” according to Ben Sharon, founder and CEO of the tokenized gold platform. Illumishare.

All is not dark and doom and gloom with Bitcoin futures. Asian Crypto Exchange VP Andrew Weiner MEXCexplained that the so-called Bitcoin paper handles skepticism from people who know little about cryptocurrencies.

“The emergence of more and more paper Bitcoin shows that BTC’s compliance and maturity has been highly recognized by the market,” Weiner told BeInCrypto via email.

“This not only accelerates the entry of traditional institutional investors and other traditional traders, but also increases the confidence of crypto users. Paper Bitcoin will introduce funds from the traditional financial world, which should propel BTC to a new high.

Serhii Zhdanov, the CEO of the EXMO exchange, agrees with Weiner’s view. Zhdanov listed the benefits that are supposed to be derived from Bitcoin ETFs. This includes diversification, “flexible risk management, opportunity to hedge positions and institutional capital inflows”.

“The idea behind Bitcoin paper can hardly be called manipulative as it rather serves the development of the sector as a full participant in the financial industry,” Zhdanov detailed.

“The advantages of such an asset outweigh the disadvantages. But it is necessary to fundamentally evaluate the fund or exchange that issues this type of asset because no one wants to lose money.

Zhdanov said that if managed well, paper Bitcoin can perform similarly to gold, oil, silver, and paper copper, among other commodities. He said that Bitcoin ETFs would have a positive effect on BTC prices due to increased institutional participation.

Dominance Bitcoin BTC BTCD

Threat of decentralization

A Bitcoin futures ETF may be good for mainstream adoption. However, this could go “against the decentralized ethos that BTC represents.”

There are fears that BTC will be “captured” by hedge funds and big banks, which could end up manipulating the price.

“BTC as a decentralized bearer instrument is essential. Imagine if all Bitcoin was held as an ETF under the custody of a single provider,” said Willy Woo last year.

“This provider can now change the convertibility rate and then decouple it to a new fiat. It happened to gold when we were on the monetary gold standard.

SEC Chairman Gary Gensler has previously shown support for Bitcoin futures exchange-traded funds that “provide significant protection to investors,” as stated in the Investment Companies Act of 1940.

However, the full usefulness of the idea will be seen when there is better stability in the market. Experts say this is especially true when it comes to political events that influence market and economic dynamics.

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