The U.S. Government Shutdown Has Delivered A Surprise Blow To Bitcoin
Bitcoin has been struggling over the last 12 months due to sky-high expectations after its massive 2017 bull run that saw the bitcoin price leap from under $1,000 at the start of the year to almost $20,000.
The bitcoin price has fallen steadily over the last 12 months, slipping to lows of near $3,000 as bitcoin and cryptocurrency investors fret over delays to network upgrades, lackluster institutional investment, and heavy-handed regulators.
Now, in a surprising development, the on-going U.S. government shutdown has forced the withdrawal of a closely-watched proposal to list a bitcoin exchange-traded fund (ETF) on the Cboe BZX Exchange—dealing a blow to those who'd hoped the long-awaited bitcoin ETF would bring a fresh round of investment into the stagnating market.
The bitcoin ETF proposal, brought by investment firm VanEck and financial services provider SolidX, has faced an uphill battle for approval from the U.S. Securities and Exchange Commission (SEC) due to concerns the bitcoin price is susceptible to market manipulation.
The decision to withdraw the application amid the U.S. government shutdown, announced in an SEC filing, saw the bitcoin price dip slightly though it remains around the $3,500 it's been trading at since early January.
With many SEC staff furloughed because of the partial closure of the U.S. federal government and the regulator's deadline to decide on the application fast approaching, Cboe Global Markets decided to pull the VanEck and SolidX application with the view to reapply at a later date.
"The SEC is affected by the shutdown… we were engaged in discussions with the SEC about the bitcoin-related issues, custody, market manipulation, prices, and that had to stop. And so, instead of trying to slip through or something, we just had the application pulled and we will re-file and re-engage in the discussions when the SEC gets going again," Jan van Eck, the chief executive of VanEck, told CNBC.
The SEC had set a deadline of February 27 to decide on the bitcoin ETF proposal after repeated delays and calls for industry input.
"Cboe’s decision to withdraw its filing with the SEC to list and trade shares of the VanEck SolidX Bitcoin Trust is a function of timing related to the U.S. government shutdown as the end of the review period approaches," Cboe said in a statement. "We plan to resubmit a filing at a later date and look forward to continued discussions with the SEC."
"This proposal had a very slim chance of success," Mati Greenspan, senior market analyst at eToro said in an email to clients. "SEC Chairman Jay Clayton has been stressing that the bitcoin market is not yet mature enough for an ETF."
"Recent price action seems to confirm this, as we've seen a number of price spikes due to the low liquidity lately. The government shutdown seems to have put further strain on this process. If there was a hope of convincing the SEC before the deadline, it has now disappeared. The market's lackadaisical response to this news is a clear sign that investors are starting to understand: the crypto market is not dependent on any government or financial institution and no single product or service has the power to make or break bitcoin," Greenspan said.
The latest development in the long-running battle to see a U.S. bitcoin ETF follows the SEC rejecting a second attempt by the Winklevoss twins of Facebook founding fame, who went on to start their own crypto exchange, to list shares of a separate bitcoin ETF last summer.
With a U.S. bitcoin ETF now off the immediate agenda, investors will be looking towards major global stock exchanges offering bitcoin futures contracts and the highly-anticipated Bakkt bitcoin platform.
The Bakkt bitcoin platform, which is being developed with New York Stock Exchange owner Intercontinental Exchange as well as partnerships with coffee shop chain Starbucks and PC giant Microsoft, plans to offer bitcoin futures trading from the first quarter of this year and open bitcoin and cryptocurrencies up to a wider retail market.
Disclosure: I occasionally hold some small amount of bitcoin and other cryptocurrencies