Paul Atkins, the former commissioner of the U.S. Securities and Exchange Commission, and Robert Greene, a visiting research fellow at the Center for Digital Financial Assets at Tsinghua University, spoke to The Capital backstage yesterday, during day two of CoinMarkCap’s first conference.
While their fireside chat covered ICOs, Libra and stablecoins, we had questions for Atkins and Greene about other crypto-related financial instruments that have been long-talked about in the crypto space.
The Capital: Could you speak to the significance of a regulated Bitcoin ETF?
Paul Atkins: It hasn’t happened because the SEC hasn’t approved it yet. So then to unpack why that hasn’t happened…the reason why there is a demand for an ETF is that it’s a way to broaden the accessibility to Bitcoin, or whatever is going to go into the ETF.
There are a number of different proposals out there. There are futures, of course, that were listed on the CBOE and they’ve withdrawn those, but there’s still the CME. That had a lot of effect on the Bitcoin market and helped to decrease the volatility. The new Wall Street Journal article about a study basically said that one person manipulated the market maybe through Tether, that’s how he helped to drive up the price of Bitcoin in the end of 2017. And then, right as CME listed their bitcoin futures, that’s when the price plummeted from $20,000 down to $12,000 or something because people could short it.
The idea with ETFs is to basically start to have more of it [crypto] be a listed security that institutions and retail people could buy, so it’s not just people putting their money into whatever they think they’re putting their money into, but there’s an intermediary type of step between the raw Bitcoin. It’s something that is listed and treated traditionally. Who knows how that will work out, and if it ever [will come] about.
But you do have institutions that are looking to hold crypto assets, but they cannot because of laws. If it’s a charitable foundation, or if it’s an insurance company or mutual fund, they can’t just go back out and buy any new product like Bitcoin or a crypto asset like that, it has to be some sort of regulated type of package.
That’s why if an ETF would come about, that would then goose the entire marketplace and help to stabilize the futures product.
The Capital: Do you have any insight into why it hasn’t happened yet?
Atkins: If you put it into a fund, then the SEC will have its fingerprints on it, because the SEC has to approve them. Secondly, I think there’s a fear that the Bitcoin world is relatively unstable and volatile. That’s a risk for retail investors, that’s the hesitancy. If it becomes an exchange-traded fund, it’s out there for everyone to access. But we have ETFs in everything, of all commodities, which are hugely volatile. That is just another means [for] people to be able to construct their portfolio, maybe short against that.
Sometimes shorting is not great, especially if it manipulates the market. But shorting is good overall in that it dampens the constant upward propensity of things. Like with Enron, if there had been more naysayers about that stock, it wouldn’t have just kept on skyrocketing — the same when the futures product came out for Bitcoin.
Suddenly, people can short it, that’s just how futures work. We touched upon this a little bit up there on stage, you don’t have any centralized trading platform for crypto assets out of design, and that’s great.
But at the same time, it’s hard to find pools of liquidity, which helps them to create the volatility of the price, and that then in turn makes people very skeptical, like “this is the screwy type of thing that I don’t want my retail investors to be investing in.”
The Capital: Do you think that the repercussions of the ICO boom are felt today? Have people moved on to other ways of raising capital?
Atkins: ICOs have ended really because of the U.S. issues, because it takes a lot of care and minding to keep American investors out of something. How are you sure — you have VPNs and everything else — where somebody is? There’s anonymity in the whole blockchain and crypto asset [sphere] anyway, so I think that made that an anathema for people to go into it.
But at the same time, there’s still demand for capital. Traditional securities offerings with all the gatekeepers are very costly, time-consuming, kind of by design: in this era, [that] is not really great. You can talk about how that’s good for investor protection, but at some point you have to have a balance. People go and bet all their money on the lottery or crazy types of schemes, and we don’t let people be ripped off.
At the same time, the whole engine of the capital markets should go forward, and innovations like this shouldn’t be discouraged just because we are afraid that some people take it the wrong way. That’s kind of balance that people are talking about.
Robert Greene: This relates with the previous discussion about ETFs in a way, in the sense that market structure for digital assets — putting the genesis of digital assets aside — in this part of the world versus the U.S. is an entirely different system. When you compare how Coinbase is structured and how Bittrex is structured, at least in the U.S., and Kraken, and contrast, those organizational models and those companies with how Binance or Huobi is structured — it’s very different.
Something you mentioned, exchanges being involved in the initial distribution of a token, we’ll see how that evolves. I still think this highlights that fundamental structural differences [between trading platform structures] are going to persist, and it’ll be interesting to see what the ultimate effect is on market liquidity, particularly with regards to Bitcoin and also, frankly, Tether, as these are the two most transacted digital assets at the moment.
Those are very much the lifeblood of this whole system, when you put aside security token offerings and put aside applying blockchain to existing securities markets. Fundamentally, we’re talking about trading platforms that are all decently centralized, but they’re just structured and operated in very firmly different ways. Some have fiat off-ramps, some don’t, and that to me [is] one of the biggest divides in the marketplace today, and it affects the discussion about ETFs.
The Capital: Can you expand on the difference in the relationship to crypto in the EU vs. the U.S.?
Atkins: For a while, Europeans were talking about statutes that go through the European Parliament for ICOs and fining on ICOs. Robbie [Greene] and I were in Brussels, which was two years ago, trying to talk them out of that and say this is going to end sadly — for you anyway — you’re going to wind up restricting things, boxing people in, and they’re just not going to want to deal with this whole superstructure that you’re building up.
Greene: It’s now really interesting to hear a lot of EU rhetoric with regards to a central bank digital currency or some iteration of that. There is strong opposition to Libra by many, but for the most part, pretty moderate to positive reaction to the idea of central bank digital currencies over in the EU.
Take what we’ve seen happening in Sweden, for example. It seems in a few years they are going to launch an e-krona, which would enable either retail accounts at the central bank or tokenized versions of central bank liabilities that retail investors could exchange. For an advanced economy to do that would be a fundamental shift in the way we think about not just the market structure related to digital tokens, but monetary policy more broadly.
Atkins: In Sweden, you know, they were thinking about doing away with cash altogether. On the national stage, we can’t imagine that at least right now, for the next foreseeable future of Germany anyway.
This interview has been edited and condensed.