Opinion by: Jonathan Hamel @jhamel
The head of the US Securities and Exchange Commission Jay Clayton holds that the lack of safeguards for investors might roadblock the approval of a Bitcoin ETF.
What investors expect is that the trading in that commodity that’s underlying the ETF is trading that makes sense, is free from the risk or significant risk of manipulation.Those kinds of safeguards don’t exist in many of the markets where digital currencies trade….Chairman Jay Clayton
Following the SEC Chairman’s comments on market manipulation in Bitcoin, let’s take a step back and explore some of the major market manipulation events in recent financial history .
In 1995, Yasuo Hamanaka, the chief copper trader of the Japanese trading house Sumitomo Corporation, allegedly attempted to corner the entire world’s copper market. It resulted in a $1.8 billion loss over 10 years.
In the 80s, traders known as “The Guinness Four” manipulated the London stock market to inflate the price of Guinness shares to thereby assist Guinness’s £4 billion takeover bid for the Scottish drinks company Distillers.
in 2012, a JPMorgan Chase trader nicknamed the London Whale, accumulated outsized CDS positions in the market resulting in an estimated $9 billions loss. The whole credit default swap market was impacted (some even made a fortune out of it).
In 2007, a Bank of Montreal NatGas trader falsified his book with the help of a third party brokerage firm providing the (false) quotes. It ultimately resulted in a $640 millions loss.
Between 2008 and 2010 JPMorgan Chase and HSBC are suspected to have gained billions in manipulating the silver market. Together they controlled over 85 percent of the commercial net short positions in the market.
In 2001, after years of witnessing Enron’s stock manipulation, in-house accountant Sherron Watkins blew the whistle. Enron ended in one of the biggest bankruptcies in history. It also led to the dissolution of a “Big 5” audit firm Arthur Andersen.
In 2015, J.P. Morgan, Citigroup, Barclays, RBS and UBS pleaded guilty to conspiring to manipulate the price of U.S. dollars and euros exchanged in the FX spot market using using invitation-only chat rooms and coded language to coordinate their trades
In October 2008, four of six executives from the Iceland-based Kaupthing Bank were caught trying to inflate share prices. The then Prime minister of Iceland dumped all of his shares HOURS before the financial crash that followed.
Former telecom giant WorldCom came under scrutiny after some serious “book cooking” in the early 2000s. The company recorded its operating expenses as investments. Ultimately, the firm let 30,000 employees go, and incurred $180 billion in losses.
in 2008, Bernard Madoff, the former chairman of the Nasdaq was arrested for allegedly running a Ponzi scheme. His fund consistently recorded a 11% gain every year for 15 years. The scheme duped investors out of approximately $50 billion.
In 2002, HealthSouth (At the time America’s largest health care service providers) came under scrutiny after the CEO sold $75 millions of stocks days prior to releasing an earnings loss. An accounting scandal followed, share went from $20 to $0.45
in 1997, Canadian co. Bre-X Minerals announced the discovery of a deposit which was reported to contain more than 200 million ounces, was said to be the richest gold mine, ever. The company collapsed after the gold samples were found to be a fraud. ,
In 2012, some of the world’s biggest banks were caught rigging The London Interbanks Offered Rate (LIBOR) which underpins approximately $350 trillion in derivatives. Miraculously, only one person was convicted at the end.
Is the Bitcoin market manipulated ? Probably at some extent but let’s not forget that some of Bitcoin’s biggest critics were all involved in market manipulation scandals that were thousands orders of magnitude bigger than the current BTC market cap.
Exchange traded funds (ETF) with underlying commodities such as gold and silver (both widely manipulated in the past) are currently available and so are exotic (toxic?) products such as 3X Inverse VIX exchange traded notes.
The BTC daily market is bigger than many commodities. The digital and transparent natures of the asset makes it very easy to track and audit. With institutional actors such as CME, CBOE and now ICE involved, there is no reasons BTC should be treated unfairly vs other assets.
A Bitcoin ETF would provide an easy exposure to BTC for retail investors and funds. Off course, it would probably brings billions of additional capital in Bitcoin. Look no further. They know it would works. The inflow of capital would be epic. They know it. Look no further.