Cryptocurrency News Now!: #74: How “crypto Mom” softened the blow of Bitcoin’s latest setback

Tuesday, July 31, 2018

#74: How “crypto Mom” softened the blow of Bitcoin’s latest setback

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07.31: Close, but no cigar

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SEC to Bitcoin community: No Bitcoin ETF for you! The 3-1 vote to reject a Bitcoin-based exchange traded fund proposed by Cameron and Tyler Winklevoss is strike two for the twins in their quest to establish an ETF—and it’s a legitimate setback for the larger Bitcoin community. Many observers think a regulated ETF would lead to an influx of institutional investors and, in turn, further legitimize the market. That will have to wait.

The SEC issued a lengthy analysis (PDF) explaining the decision, but what it comes down to is that the agency can’t be sure Bitcoin’s price isn’t being manipulated. It argued that the ability to surveil the Bitcoin market, where much of the trading goes on via unregulated exchanges in other countries, is too limited. It cites academic research suggesting that certain of those exchanges may have propped up Bitcoin’s price at times last year. And it says it cannot conclude that the Winklevoss’s fund would be sufficiently resistant to fraud. The decision didn’t shut the door on Bitcoin ETFs, though; the SEC is still considering four proposals.

Running to “Crypto Mom.” That lone dissenting vote? It came from SEC commissioner Hester Peirce, who argues that her colleagues focused too much on potential manipulation in the underlying Bitcoin “spot market,” and not enough on the ability of the exchange intending to list the ETF to police manipulation. Peirce reasons that blocking the ETF will harm innovation by discouraging additional institutional participation, which itself would “ameliorate many of the Commission’s concerns with the Bitcoin market” by pushing it become more transparent and protective of investors.

Peirce’s dissent has been a hit among Bitcoin fans, who have rallied to balloon her Twitter following in show of support. The episode is reminiscent of the enthusiastic response to Commodity Futures Trading Commission head J. Christopher Giancarlo’s use of Bitcoin slang while testifying in Congress in February, after which the online crypto community dubbed Giancarlo “crypto Dad.” Welcome, “crypto Mom.”

Paul Krugman comes out as a full-blown crypto skeptic. The Nobel-winning economist and New York Times columnist used his latest offering to explain why he doesn’t expect cryptocurrency to make much of an impact beyond “a potential equilibrium in which Bitcoin (although probably not other cryptocurrencies) remain in use mainly for black market transactions and tax evasion.” You should check out Krugman’s argument yourself, but in short he says transacting in cryptocurrencies costs too much, and that digital currencies risk losing all value due the “absence of tethering.” Unlike cryptocurrencies, whose value could collapse if people lose faith, “fiat currencies have underlying value because men with guns say they do,” he writes.

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Loose Change

Fill your pockets with these newsy tidbits.

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Looking for a place to do an ICO without the regulatory scrutiny? Try Bermuda, Gibraltar, Malta, or Liechtenstein. (New York Times)

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Coinbase has hired its first chief compliance officer. (Reuters)

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Nasdaq recently held a closed-door meeting with representatives from cryptocurrency exchanges to encourage the industry to improve its image. (Bloomberg)

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Bitmain, which generated $1.1 billion in profit in the first quarter of this year, has announced a new funding round that values the company at roughly $14 billion. (Fortune)

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Video game platform Steam has pulled an indie game that was allegedly hijacking users’ computers to mine digital coins. (Motherboard)

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Mark Andreessen, Chris Dixon, and other high-profile investors have backed cryptocurrency investment firm Scalar Capital. (Forbes)

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The Money Quote

“The disconnect between the hype and the reality is significant—I’ve never seen anything like it.”

—Rajesh Kandaswamy, an analyst at Gartner. Bloomberg reports that many American companies will wind down their blockchain experiments this year, and in most cases they don't have plans to integrate the technology into real business operations.