Bitwise CIO Matt Hougan Discusses Amended Spot Bitcoin ETF Application

Key Takeaways

  1. Matt Hougan, CIO of Bitwise, provides detailed insights via Twitter on the company’s amended spot Bitcoin ETF application.
  2. Hougan focuses on the need to establish that the CME bitcoin futures market is the leader in price discovery.
  3. The amended application is designed to address each of the SEC’s major objections to spot Bitcoin ETFs.

Matt Hougan’s In-Depth Twitter Commentary

Matt Hougan, the Chief Investment Officer at Bitwise, took to Twitter on September 25, 2023, to offer a comprehensive breakdown of the firm’s amended application for a spot Bitcoin ETF. In a detailed thread, Hougan stated that the amendment aims to “address, point by point, each of the major objections the SEC has raised in prior disapprovals for spot bitcoin ETFs.”

The Imperative of Proof

One of the critical points Hougan emphasized was the necessity of demonstrating that the CME bitcoin futures market is the leading force in price discovery over the spot market. He articulated, “We’re back to needing to prove that the CME bitcoin futures market leads price discovery over the spot market such that it can serve as a ‘regulated market of significant size’ for the purpose of surveillance.”

Academic Literature and Price Discovery

Hougan further delved into the academic aspect, stating that the amended application aims to “clear up the significant confusion around the growing body of academic literature on price discovery in the bitcoin market.” He was unequivocal in asserting that “every well-designed academic study supports the finding that the CME is ‘significant.'”

Regulatory Challenges and Surveillance

Hougan also touched upon the regulatory hurdles that Bitwise and other applicants face. While acknowledging that “surveillance sharing agreements with spot exchanges are positive,” he cautioned that these might “not satisfy the technical regulatory requirements” as stipulated by the SEC.

Bitwise’s Commitment to Research

Hougan used the Twitter thread to highlight Bitwise’s longstanding commitment to original research in their Bitcoin ETF filings. He cited the company’s 2019 research that aimed to uncover fake volume in the spot market and their 2021 white papers that sought to prove the CME futures market’s leading role in price discovery.

The Long Road to Approval

Hougan concluded his thread by reiterating Bitwise’s commitment to making a spot Bitcoin ETF a reality. He mentioned that the company has been working towards this goal for over five years and expressed gratitude towards others who have contributed to the cause.

Image source: Shutterstock


Tagged : / / / / / / /

Bitcoin price can’t find its footing, but BTC fundamentals inspire confidence in traders

Bitcoin’s (BTC) sudden crash on Jan. 10 caused the price to trade below $40,000 for the first time in 110 days and this was a wake-up call to leveraged traders. $1.9 billion worth of long (buy) futures contracts were liquidated that week, causing the morale among traders to plunge.

The crypto “Fear & Greed” index, which ranges from 0 “extreme fear” to 100 “greed” reached 10 on Jan. 10, the lowest level it has been since the Mar. 2020 crash. The indicator measures traders’ sentiment using historical volatility, market momentum, volume, Bitcoin dominance and social media.

As usual, the panic turned out to be a buying opportunity because the total crypto market capitalization rose by 13.5%, going from a $1.85 trillion bottom to $2.1 trillion in less than three days.

Currently, investors seem to be digesting this week’s economic data that shows United States December 2021 retail sales going down by 1.9% compared to the previous month.

Investors have reason to worry about stagflation, a scenario where inflation accelerates despite the lack of economic growth. However, even if this eventually proves that Bitcoin’s digital scarcity is a positive characteristic, markets will still take shelter with whatever asset is deemed safe. Thus, the first wave will potentially be damaging for cryptocurrencies.

Top weekly winners and losers on Jan. 17. Source: Nomics

Bitcoin price was flat over the past seven days, effectively underperforming the altcoin market’s 7% gain. Part of this unusual movement can be explained by layer-1 decentralized applications platforms showing a positive performance that was driven by Fantom (FTM), Cardano (ADA), Near Protocol (NEAR) and Harmony (ONE).

Loopring (LRC), a zkRollup open protocol for decentralized exchanges on Ethereum, presented the worst performance of the week. The DEX volume using the protocol peaked at $30 million per day in early December 2021, but is now near $6 million. Meanwhile, Dfinity (ICP) and Chainlink (LINK) are adjusting after a 40% or higher rally in the first 10 days of 2022.

Tether’s premium and the futures premium held up well

The OKEx Tether (USDT) premium or discount measures the difference between China-based peer-to-peer (P2P) trades and the official U.S. dollar. Figures above 100% indicate excessive demand for cryptocurrency investing. On the other hand, a 5% discount usually indicates heavy selling activity.

OKEx USDT peer-to-peer premium vs. USD. Source: OKEx

The Tether indicator bottomed at a 3% discount on Dec. 31, which is slightly bearish but not alarming. However, this metric has held a decent 2% discount over the past week, signaling no panic selling from China-based traders.

To further prove that the crypto market structure has held, traders should analyze the CME’s Bitcoin futures contracts premium. That metric analyzes the difference between longer-term futures contracts to the current spot price in regular markets.

Whenever this indicator fades or turns negative, it is an alarming red flag. This situation is also known as backwardation and indicates that bearish sentiment is present.

BTC CME 2-month forward contract premium vs. Bitcoin/USD. Source: TradingView

These fixed-month contracts usually trade at a slight premium, indicating that sellers request more money to withhold settlements for longer. As a result, futures should trade at a 0.5% to 2% premium in healthy markets, a situation known as contango.

Notice how the indicator flipped negative on Dec. 9 as Bitcoin traded below $49,000 but it still managed to sustain a slightly positive number. This shows that institutional traders display a lack of confidence, although it is not yet a bearish structure.

Considering that the aggregate cryptocurrency market capitalization is down 9.5% to date, the market structure held rather nicely. The CME futures premium would have gone negative if there had been excessive demand for short-sellers.

Unless these fundamentals change significantly, there is not yet sufficient information available that would support calls for a sub-$40,000 Bitcoin price.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.