The Securities and Exchange Commission is expected to act soon to approve or reject bitcoin-based Exchange Traded Funds. Such Exchange Traded Funds would buy and hold bitcoins and provide an opportunity for United States investors to speculate in bitcoin. They are not in the public interest, and the Securities and Exchange Commission should reject them. Approving bitcoin Exchange Traded Funds would support a payment mechanism that has only one viable application, to break the law. Approval by the Securities and Exchange Commission would constitute an endorsement of bitcoin that would further its use in money laundering, ransom ware, tax evasion and other criminal activities.
Blockchain has many legitimate applications, but Bitcoin 1.0 is not one of them. Further, there is nothing wrong with cryptocurrencies, and have called upon the Federal Reserve to issue dollars in blockchain form. Person or a group using the name Satoshi Nakomoto started Bitcoin in 2008. No one knows for sure who Satoshi Nakomoto is. There are people who are suspected of being Satoshi Nakomoto who deny it and others who claim to be Satoshi Nakomoto but cannot prove it. This murky background alone should give regulators pause.
Bitcoin is an electronic payment medium that allows anyone to transfer bitcoins securely from one bitcoin address to another. A group of miners on the internet who verify each transaction verifies transactions. When the miners verify that a bitcoin associated with one address has not been spent, they add the new transaction to the public record known as the blockchain. Miners are paid for their activity through the issuance of newly minted bitcoins derived from a mathematical formula that purportedly limits the total number of bitcoins that can ever be created. This is all secured through cryptography.
Bitcoin transactions are essentially anonymous. While the blockchain records what bitcoins were transfer by one address to another, it does not contain any information on the identity of those addresses. Unless someone does something to disclose his or her address, it is nearly impossible to figure out the identity behind an address. Most of the trading in bitcoin occurs in China, and Chinese firms control most of the mining activity. This also raises serious questions about the ability of United States regulatory authorities to investigate and prosecute market manipulation of the bitcoin price.
As the proposed Exchange Traded Funds are just plays on the underlying price of bitcoin, this inability to investigate manipulation of bitcoin prices means that the Securities and Exchange Commission will lack the fundamental ability to protect United States investors from abuses in this market. Approving bitcoin Exchange Traded Funds will lead investors from United Statesto slaughter. Bitcoin is a payment system ideally suited to the black market. The anonymity of bitcoin transactions makes it ideal for drug-running, terrorist funding and human trafficking. Bitcoin is the coin of the realm in the dark web.
Forbes Investing posted in Twitter:
“Spurred by rumors the Securities and Exchange Commission will approve a bitcoin Exchange Traded Funds, the price of bitcoin finally surpassed an ounce of gold.”
The prospect uses for the bitcoin Exchange Traded Funds do not clearly communicate that criminal activities are the primary use of Bitcoin 1.0. Indeed, they do not even mention ransom ware, narcotics or pornography. For this reason, the Securities and Exchange Commission should reject them based on inadequate disclosure. Of course, bitcoin proponents do claim that there are legitimate applications for bitcoin. However, these proposed applications are mostly theoretical and fall apart upon closer examination. The notion that merchants will flock to bitcoin because there are no chargebacks and lower fees has not materialized. While a few merchants now accept bitcoin, this has mostly been a novelty. Consumers have intelligently shied away from Bitcoin 1.0 because of the complete lack of consumer protection built into Bitcoin 1.0.
Bitcoin’s just like cash feature makes it as dangerous as cash with the added vulnerability of a hacked wallet with no recourse. Furthermore, as it takes around 10 minutes or more to verify a block and about an hour to reach true finality, there is substantial risk to merchants that fraudsters acting in concert can double spend bitcoins.
Some hold that Bitcoin 1.0 is a digital gold because there is a theoretical limit to the number that can ever be created. This conveniently ignores the fact that the computer software behind Bitcoin 1.0 is whatever 51 % of the miners will accept. The bitcoin protocol can and will change, as it already has. Furthermore, gold has many commercial and industrial uses that give it intrinsic value, unlike bitcoins.
The mirage-like no transactions cost nature of bitcoin makes it look like a way to make micropayments work on the internet. Users would be able to efficiently pay a few cents here or there to read an article or listen to a song. Moreover, bitcoin trades are not free, and miners are already expecting transaction fees in order to incorporate transactions in blocks. Consumers are not exactly clamoring for a way to pay for content they now get for free too.
Cross-border remittances are very expensive, and bitcoin-based applications are one of many solutions. While bitcoins, like electrons, can be sent cheaply anywhere in the world, the problem remains with both the first and last mile getting the remittance from one currency into bitcoin and then from bitcoin into the local currency at the other end. There are a lot of new entrants into the cross-border remittance space that are bringing the cost down better than bitcoin. The fact remains that the only viable application for Bitcoin 1.0 is to break the law.
It is certainly not in the public interest for the Securities and Exchange Commission to endorse a product whose only application is criminality. The Securities and Exchange Commission would not permit a Heroin and Cocaine Exchange Traded Fund and it should not permit a Ransom ware Exchange Traded Fund either.