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A Stronger Foundation for Bitcoin ETF Applications



One of the recurring themes in the digital asset markets across 2018 and 2019 has been the failure of multiple Bitcoin (BTC) exchange-traded fund (ETF) applications to gain the approval of the United States Securities and Exchange Commission.

Each new application was met with anticipation, only to be dismissed for the same reason: concern over how the ETF would derive its price, whether this price could be manipulated, and if the listing exchange could adequately meet section 6(b)(5) of the Exchange Act. This section states, in part, that:

“The rules of the exchange are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade…” (17 USC 78f (b)(5)).

Related: A Brief History of the SEC’s Reviews of Bitcoin ETF Proposals

The common thread between all of these applications was a plan to create the reference price — the price, at which assets are valued and benchmarked — from retail exchange data. For example, the Winklevoss Bitcoin ETF’s reference price was to be based on the results of the Gemini retail exchange’s daily auction for spot Bitcoin. In the case of Bitwise, the reference price was based on a blend of data from several prominent retail exchanges.

We believe that all prior ETF applications have failed to demonstrate their ability to meet the requirements of Section 6(b)(5) for several reasons:

  • The retail Bitcoin market is just that: predominantly retail. Any market with a heavy volume of inexperienced investors trading very small sizes is much easier to manipulate largely because these participants are much more likely to overreact to perceived market pressures.
  • The total volume of retail Bitcoin exchanges is spread over several hundred exchanges worldwide. Any market that is highly fragmented like this is prone to manipulation.
  • Virtually all of the well-known instances of hacks, exchange failures or exchange fraud have been retail exchanges. While some retail exchanges have very good governance, the majority do not.

Related: Crypto Hacks: Crypto Exchange Hacks & Cryptocurrency Hackers

Unless this is addressed in forthcoming applications, we believe that it is extremely unlikely that any Bitcoin ETF that relies on the retail exchange market for a reference price will be approved anytime soon.

A new path forward

Many people, especially those outside of the institutional crypto market, believe that retail exchanges represent the majority of the Bitcoin market. However, that’s not the case.

Alongside retail venues, there is a vibrant, liquid over-the-counter (OTC) market for spot Bitcoin, whose participants are primarily institutional investors and professional market-making firms. While no one has come up with a precise measure of the size of the OTC market — most market makers do not publicly release trading volumes — a major study conducted by the Tabb Group in 2018 found that the OTC market is likely three to four times the size of the retail market. Moreover, this larger volume is spread across an estimated 30–40 active OTC market makers rather than several hundred retail exchanges.

Related: Crypto OTC Trading, Explained

As with other areas of finance, trade sizes vary significantly between the institutional and retail markets. On retail exchanges, most trades are for fractions of a Bitcoin. In the OTC market, market makers have minimum trade size requirements that are typically in the $100,000-to-$200,000 range.

We believe that the OTC market can provide a much more accurate and secure measure of pricing for Bitcoin ETFs, one that is far more likely to satisfy regulators. Above all, the OTC markets are far less susceptible to manipulation:

  • The OTC market has greater volume spread over fewer venues with institutions executing trades of far greater size. This means there is greater available liquidity and pricing inertia, making it difficult to panic the market through malicious actions.
  • Most of the OTC trading desks are staffed with traders who have significant prior trading experience in traditional asset classes. They are far more likely to understand false bids and offers for what they are and, therefore, will typically react less to attempted manipulation.
  • There is no central limit order book — a trading method used by most exchanges and commonly referred to as “CLOB” — for trading in the OTC markets. Market manipulation typically depends on strategies involving the placement of multiple bids and/or offers into order books, which “paint a picture” that there is real market interest at certain pricing levels when, in fact, there is none. OTC markets trade almost purely through a request for quote process.  Without an order book, manipulators are missing their primary tool for manipulation.
  • If a customer of an OTC trading desk is seen frequently indicating an interest at certain price levels and not acting at those levels, the OTC dealers will disfavor that participant.

Beyond the manipulability of the underlying market itself, it will also be critical in any ETF applications to show that the reference price is resistant to manipulation. One way to achieve this is by deriving pricing from a fixing window. Fixing windows is utilized with many traditional assets.

How would a reference price derived through a fixing window of a few hours be secure? With a fixing window, any effects of showing false buying or selling interest to market makers will be highly diluted. The parties overseeing the price will be better positioned to recognize and exclude questionable prices that deviate from the average of all other contributors — again, sourcing pricing from a handful of OTC participants is far less laborious than working with a highly-fragmented retail market.

The sweet spot for the number of OTC contributors to a pricing index is approximately from 10 to 15. At this level, with the right policies in place, even a handful of market makers colluding together would have difficulty influencing the index by more than a non-meaningful percentage.

We believe that the correct path forward in securing approval for a Bitcoin ETF is not to repeat the retail-based pricing model. Continued rejections and the little effort made to address regulatory concerns demonstrate the weakness of this approach. Rather, fund sponsors should look to the much more professional and far less vulnerable OTC markets. A pricing mechanism sourced through OTC markets are far more resistant to market manipulation and may give regulators the confidence needed to take an application forward.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Robert Emerson is the head of quantitative analysis at Tassat, overseeing all aspects of product design and modeling, risk modeling and margin methodologies. A veteran of traditional finance, Robert developed interest-rate derivatives data, analytics and valuation business for one of the market’s leading vendors and traded interest rate derivatives at Lehman Brothers and Solomon Brothers. He is a graduate of MIT University.



PewDiePie Is Guilty of Every Attack He Hypocritically Aims at Jake Paul



  • PewDiePie trashed fellow YouTuber Jake Paul’s new financial freedom courses in a recent video.
  • But Felix is guilty of shilling sketchy financial products too.
  • To top it off, PewDiePie gives financial advice in the video, while criticizing Jake Paul for not having any credibility to give financial advice.

PewDiePie wasn’t back on YouTube for long before running out of ideas for original content. So he piggy-backed off another YouTuber’s original work instead.

His response video to Jake Paul’s financial freedom movement isn’t the first time Kjellberg has attacked his fellow YouTuber’s efforts to make the world a better place. The king of gaming YouTube has a longstanding beef with both Jake and Logan Paul.

jake and logan pauljake and logan paul
PewDiePie has a longstanding beef with the Paul brothers. | Source: Michael Reaves/Getty Images/AFP

Last year, he even stooped as low as bashing Jake Paul’s petition to end cyberbullying.

PewDiePie has expressed consternation in the past with a media that nit-picks over his channel and allegedly blows anything negative out of proportion.

But he’s doing the same thing to Jake in this recent video.

Felix Shilled Scammy Cryptos

Just last month, Felix shilled sketchy cryptocurrency projects to his audience for affiliate revenue at the beginning of a video.

He even acknowledged with a joke how greedy it was to include an ad in a video that already had ads on it:

Many people have lost millions to crypto scams in the last decade while hoping to get rich. PewDiePie leveraged his fame and the trust of his fans to push more scammy cryptos. Yet he criticizes Jake Paul for encouraging people to educate themselves about finance and business.

He even made fun of another shady crypto scam in 2018, before selling out to TRON, BitTorrent, and DLive.

PewDiePie Mocks Jake Paul for Giving Financial Advice… Then Gives Financial Advice

As if that weren’t astounding enough, PewDiePie is actually guilty of what he slams Jake Paul for within the same video that he upbraids Paul. It’s unbelievable.

Pewds mockingly says:

Yes, Jake Paul is the person I look at when I envision financial freedom.

Then laughs.

But why not?

pewdiepie, jake paulpewdiepie, jake paul
PewDiePie is more like Jake Paul than he wants to admit. | Source: PewDiePie/YouTube

Paul is in his early 20s, and he’s a multi-millionaire. That actually makes him at least credible, if not authoritative, as a source of business and financial advice.

While PewDiePie doesn’t think Paul’s YouTube success translates to financial savvy, he instantly turns around and starts giving financial advice:

Student loan is the cheapest loan you can ever get. It’s one of the most fair loans. It’s a great loan to actually take advantage of.

That was in response to Jake Paul criticizing student loans for costing so much and not delivering students the earning power that would make them worth it.

But Jake Paul is right. And PewDiePie is wrong.

Job pay hasn’t kept up with the ballooning costs of loan-financed college education. And one markedly unfair aspect of student loans is they are notoriously difficult to discharge in bankruptcy.

PewDiePie concludes:

Jake Paul is the kind of celebrity that doesn’t have any real value… You could replace Jake Paul with anything or anyone and it wouldn’t make a difference.

Honestly, how special is it to play Minecraft and laugh at memes?

PewDiePie is even more “guilty” than Jake Paul of this final criticism.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of

This article was edited by Josiah Wilmoth.


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Secretive Digital Fiat Project Emerges With New Partner as CBDC Chatter Grows



As central bank digital currencies (CBDCs) march into view, a privately-run version of digital fiat is adding a key tech partner.

Utility Settlement Coin (USC), the blockchain-based payments system involving commercial and central banks, will be working with ConsenSys-backed startup Adhara, CoinDesk has learned. Adhara was behind Project Khokha, which used enterprise blockchain client Quorum to see how zero-knowledge proofs performed with the South African Reserve Bank (SARB).

The move is one of only a handful of public overtures by Fnality, the company that oversees the development of USC. Fnality raised $64.5 million in June 2019 from 14 shareholders including banking giants Barclays, Santander, BNY Mellon, ING and others.

“We think adding Adhara is going to really help us. They’ve got experience of doing some of this type of stuff in other places,” said Fnality CEO Rhomaios Ram.

The sensitive nature of Fnality’s discussions with central banks means it likes to keep a low profile. To date, USC’s only known technology partner was London-based Clearmatics Technologies. (Clearmatics, which uses a fork of ethereum, played a key part in the inception of USC, along with Swiss lender UBS, back in 2015.)

“At Fnality we are pursuing a multi-partner strategy,” Ram said. “Part of that is associated with risk and part of that is associated with we want more people involved in this ecosystem.”

The USC is commercial bank money, as opposed to a pure CBDC, which is issued and backed by the domestic central bank and carries sovereign risk. However, the design of USC allows it to carry some of the characteristics of central bank money because the cash collateral backing the USC is held at a domestic central bank.

As stated in a mandate to its shareholder commercial banks, Fnality’s plan is to represent five currencies on its blockchain – USD, euro, JPY, GBP and CAD – and solve the so-called “cash on ledger” problem, allowing wholesale banking transactions to happen instantly, cross-border and 24/7.

An industry source close to Fnality said adding Adhara makes sense because the work the startup has already done in South Africa could evolve into a Fnality payment system. The Swiss National Bank (SNB) was also mentioned by the source as a possible custodian of Fnality’s tokenized cash.

Asked if SARB was going to be in the cards when it comes to including more central banks within Fnality, Ram said: “We can’t look ahead that far. Our mandate from our investors is to focus on the five [currencies] and then, depending on how successful we are with those five, we will come to the others as and when, depending on what our investors say at that time.”

Ram acknowledged that CBDCs have risen on the agenda since his company’s June 2019 fundraising, adding that Fnality has held “very casual, informational conversations with some people,” but he had no idea what their intentions were or whether it was just educational. 

Neither SARB nor SNB returned requests for comment.

The Libra effect

The landscape has changed dramatically regarding central banks and digital currencies thanks to Facebook’s audacious plans for its Libra stablecoin. 

A key question for any large-scale, privately-backed initiative in this area now is whether Libra was a good or a bad thing.

A positive scenario is that central banks now move more quickly on initiatives like USC; another possible outcome is the central banking fraternity actively discouraging private-sector experiments from encroaching any further into the territory of the state. 

Ram agreed that Libra cut both ways. “It was literally both good and bad,” he said. “It was good because obviously these types of things gather a lot of attention and people that didn’t take us seriously before started to. But at some level, if you are not in the detail of this, it all looks the same. That can be a good or bad thing.”

John Whelan, Santander Bank’s innovation chief who is also on the board of Fnality, said it was not a question of competing with CBDCs at all.

“We see these things as entirely complementary and it’s quite likely given the regulations and the impact potentially on monetary policy … that something like Fnality will come into existence [before CBDCs]. But they are totally compatible,” said Whelan.

In light of Libra, Ram was philosophical about possible outcomes for Fnality’s ambitious plan to tokenize fiat held in the coffers of major central banks. 

“If the only thing that this [Libra] does is force the conversation and force some speed up on CBDCs – from a personal perspective that might not be great – but from the investors’ perspective that might still work for them [Fnality’s shareholder banks],” he said.

2020 vision

Fnality’s task, to create a regulatory framework and rulebook that five large central banks can digest, is ambitious in itself, nevermind coordinating the build of the various parts of the stack plus all the integration work that has to be done. 

A second source familiar with the project said Fnality’s strategy regarding its contracting framework and execution plan seemed “quite confused.”

“Whenever you have a lot of people involved in something – and they’ve grown their headcount quite aggressively – if you don’t have a clear program and execution plan at the beginning, there’s a natural tendency to kind of end up going all over the place,” the source said.

Regarding the scale of the organizational challenge, Ram said: “That is kind of the special sauce of Fnality, organizing all of these different stakeholders. That’s what we are aiming to be good at – that and driving all the legal and regulatory.”

The plan announced with last year’s fundraising was to come out with one of the main five currencies on the network by the end of 2020. 

“We have got no reason to change our minds yet. So all looks still possible,” Ram said.  

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.


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Caitlin Long Starts the First Crypto-Native Bank in the U.S.



Caitlin Long, a former Wall Street executive who has helped Wyoming enact 13 blockchain-enabling laws, is taking advantage of the progressive Wyoming legislature to establish a first crypto-native bank in the U.S. The bank’s name is Avanti, which means “forward” in Italian.

Long made this announcement earlier today in a series of 29 tweets. She believes that “a critical piece of U.S. market infrastructure is missing – a regulated bank that can act as a bridge to the Federal Reserve for payments and [offer] custody for BIG institutional money.”

Long thanked Wyoming governor Mark Gordon for making this possible, as Avanti takes advantage of the special-purpose depository institution law “which is the optimal regulatory-compliant structure in the U.S. for providing financial services around crypto.” 

Cointelegraph reached out to Caitlin Long for a comment, but did not receive an immediate response. This article will be updated if we hear back.

Strict regulation

However, Long notes that this special-purpose depository law has stringent regulatory requirements. According to this law, all deposits — in the case of Avanti, crypto deposits — must be 100% reserved. Avanti will also not be allowed to use deposits for any financial operations of its own — a practice known as “rehypothecation.” Strict Know Your Customer standard must be applied. “DON’T EVEN THINK ABOUT trying to use Avanti for illegal/nefarious purposes!!!!!!!!!,” warns Long in a tweet.

Strange bedfellows

Long stated that she has had many long conversations with Adam Back, CEO and founder of Blockstream and an early contributor to Bitcoin, prior to starting Avanti. She believes that Blockstream is an “ideal partner for serving BIG institutional investors that require regulated banks to deliver them services around bitcoin in USD markets.”

However, she states that Avanti will stay “protocol neutral” and will welcome all cryptocurrencies demanded by clients. According to Long, we can also expect to see: 

STRANGE BEDFELLOWS because it’ll attract the best from the crypto & traditional worlds. I’m comfortable + have deep relationships in both worlds & I am equally comfy in NYC’s concrete canyons as in the wilds of Wyoming.”

Long expects Avanti to open its doors in early 2021. If Long is right that could lead to the influx of a significant amount of new liquidity to the market.


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