Sad but not surprised to see the Bitcoin ETF rejected by the SEC. It's time for the crypto community to take both SEC's concerns and its own long-standing problems seriously.
Winklevoss twins bitcoin ETF rejected by SEC
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1. The SEC cites the disparate prices across exchanges as one of the big problems standing in the way of an ETF. IC3 is working on solutions to bridge this gap and enable exchanges to improve their liquidity.
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2. The SEC is also concerned about the ease of manipulation. Exchanges can easily engage in wash trading, front running, stop loss/margin call hunting, and a range of other behaviors because they are in a position of trust.
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Wash trading and "manipulation" are second-order problems -- derivative problems. It's not clear why wash trading bitcoin on any one of 100+ exchanges would matter. Agree on front running & stop hunting but these should be easily observable by the impacted users.
Second order effect of wash trading is that it enables a single actor to create the appearance of liquidity being taken at synthetic price levels — in addition to the first order effects of inflating volume. Not many people understand how this practically works, let me explain:
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Trader Malory goes to an exchange and creates *2* accounts. Account A has $100k, Account B has 15 BTC. Imagine an empty order book. B sets ask 5BTC@8000, A wash trades that order, then sets ask at a higher price. Each account USD and BTC balance swing back and forth
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