An exchange giant lays out its defense of a bitcoin product that could transform the cryptocurrency

Traders in the Eurodollar options pit at the Chicago Board of Trade signal orders, shortly after the Federal Reserve's decision to leave short-term interest rates untouched between zero and 0.25 percent, in Chicago December 16, 2009. Frank

• Cboe Global Markets president Chris Concannon addressed the SEC's concerns about a bitcoin exchange-traded fund in a letter out Monday.
• A bitcoin ETF has long been viewed as a natural next step for bitcoin after the launch of futures.

The exchange behind one of the two markets for bitcoin futures in the US is trying to mollify regulators' concerns about an exchange-traded product tied to the cryptocurrency.

In a letter to the Securities and Exchange Commission out Monday, Cboe Global Markets president Chris Concannon addressed a note penned by the agency in January, which questioned whether issues such as illiquidity and fragmentation in bitcoin markets would serve as an improper basis for an exchange-traded fund.

"Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products," Dalia Blass, the director of the agency's investment management, wrote in January.

Addressing the liquidity of both the bitcoin and bitcoin futures markets, Concannon noted that spot bitcoin exchanges have seen impressive turnover, on par with some traditional markets. He also noted that liquidity in bitcoin futures has been promising, despite being relatively muted since their inception. Here's Concannon:

"Looking specifically to bitcoin, the nascent futures markets are developing quickly and, while the current bitcoin futures trading volumes on Cboe Futures Exchange and CME may not currently be sufficient to support ETPs seeking 100% long or short exposure to bitcoin, Cboe expects these volumes to continue to grow and in the near future reach levels comparable to those of other commodity futures products at the time that they were included in ETPs."

As for market fragmentation, Concannon says it is an issue that other assets with their own ETFs face.

"If you look at the currency or the gold market, it is probably more fragmented than crypto," he said during an interview with Business Insider. "There are a lot of venues to access currency markets."

Cboe has pioneered bitcoin's entrenchment into mainstream Wall Street, launching the first market for bitcoin futures in the US in December 2017. That followed an earlier attempt by Bats, an exchange acquired by Cboe in 2017, to trade a bitcoin-ETF from the Winklevoss twins. Such a product could serve as a powerful on ramp for retail investors to dive into the cryptocurrency, which soared to almost $20,000 in 2017.

A bitcoin ETF was viewed as a natural next step in bitcoin's maturation as an asset after the launch of futures. In response to regulatory pushback, however, a number of issuers - from VanEck to ProShares - have withdrawn their applications for a bitcoin fund. As many as 10 bitcoin-linked ETFs are sitting in regulatory limbo, waiting for approval, according to a recent note by JPMorgan.

JPMorgan, which described a bitcoin fund as a "holy grail" for the cryptocurrency, said its impact could resemble the impact of the first gold-linked ETF.

After the launch of SPDR Gold Shares ETF in 2014, "retail access to gold has skyrocketed as new investors more easily turn to the gold market as a portfolio diversifier and as a foundational asset," JPMorgan said.

The point of the letter by Cboe isn't to rush the SEC to make a decision, according to Concannon, but rather to "point out areas that can be satisfied" and advocate for the "development of the marketplace."

"This has been a priority for us since we approached the SEC almost a year ago with the Winklevoss brothers and their original bitcoin filing," Concannon said.
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