Comment to US SEC about the
2021 Grayscale ETF proposal
(File No. SR-NYSEArca-2021-90)

Subject: File No. SR-NYSEArca-2021-90
From: "Jorge Stolfi" <>
Date: Mon, April 18, 2022 1:46 pm

Dear SEC,

Please DO NOT authorize the Grayscale bitcoin ETF. The reasons why you rejected previous ETF proposals are still valid and should be sufficient to deny this one (and any future ones) as well.

But if you need any other reasons:

Bitcoin Is a Tool of Crime

Bitcoin's only significant use as money and payment system is as a money laundering tool for criminals. It alone created the epidemic of ransomware, a virtually unknown form of attack that has now become the major form of cybercrime, globally and in the US:

From this article:

"A 2017 report from Cybersecurity Ventures predicted ransomware damages would cost the world $5 billion (USD) in 2017, up from $325 million in 2015 — a 15X increase in just two years. The damages for 2018 were predicted to reach $8 billion, for 2019 the figure was $11.5 billion, and in 2021 it’s $20 billion — which is 57x more than it was in 2015."

Bitcoin has also allowed the existence and flourishing of the the so-called "dark markets", notably the drugs-by-mail sector, which has caused thousands of excess deaths by fentanyl and fentanyl-laced heroin overdoses among teenagers.

From this recent article:

"Two-thirds of the approximately 70,000 overdose deaths in the U.S. in 2017 involved an opioid, according to the U.S. Centers for Disease Control and Prevention. Overdose deaths involving the drugs have increased almost sixfold during the past two decades. ... The DEA official said estimates of illicit transactions, including for drugs, conducted in bitcoin reach $76 billion annually ... 'Now, it’s more prevalent than before. [said police Sgt. Joshua Lee of the Mesa, Arizona] Bad guys are realizing they’re less likely to get caught if they move stuff to the dark web.'"

In these roles, bitcoin has taken the place of the defunct rogue a replacement for the defunct internet "criminal bank" Liberty Reserve, for the same reason: it is the only available internet payment system that totally ignores KYC/AML laws. For this same reason, thousands of other commercial and investment frauds have chosen to use bitcoin as the payment method. While some law enforcement agencies may have grown fond of Bitcoin, because they got tracing tools that let them catch small criminals with little effort, the vast majority of the perpetrators of Bitcoin-enabled crimes go unsolved and unpunished.

In contrast, Bitcoin has failed to gain any acceptance as a currency or payment system for legal commerce or other legal economic activity, in spite of 10 years of intense promotion towards that goal. That is not surprising once one learns that it is absolutely awful at those roles, in all aspects. Its value is way too volatile to use as money, often varying by more than 10% in a matter of minutes. Its network is *inherently* expensive to operate, currently consuming more than 50 USD of electricity per transaction processed. The time for the network to confirm validity and execution of a payment ranges from 10 *minutes* to several weeks, depending on load (whereas credit cards confirm in about 10 *seconds*). And any more.

Would the SEC authorize an ETF whose portfolio is to consist exclusively of shares of a taxi company whose services are restricted to getaway rides for bank robberies? Or of a construction company that specializes in secret tunnels under the Rio Grande? Or of a shipping company whose fleet is a dozen pocket submarines plying the Colombia-Florida route?

Bitcoin Is a Huge Ponzi Scheme

Bitcoin is widely and loudly promoted (even by GBTC and its founding investors) as an investment instrument, a better alternative to stocks, bonds, and gold. However, Bitcoins are quite unlike gold, because they have no consuming demand: uses that would take them out of the market in an essentially permanent basis (like jewelry and industry do with gold). Thus they don't have the intrinsic value that gold, like any commodity, has. Bitcoins are also quite unlike stocks, because there is no source of revenue (like the clients of a company) that will return to the holders of Bitcoins a single penny of their investment, in any form or by any means. And they are unlike bonds, because there is no entity that has any obligation to redeem those coins, at any future time and for any predefined price.

The only way for a Bitcoin investor to recover his investment, let alone make a profit from it, is by selling the coins to another investor. Thus Bitcoin perfectly fits the definition of Ponzi scheme, as given in dictionaries and by the SEC itself:

"A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors."

In fact, Bitcoin is not just a zero-sum con game, as the definition implies. The operators of the network (the so-called "miners") are still issuing new coins, about 900 per day, which they sell to investors. Thus Bitcoin investors, as a whole, are losing money -- about 40 million USD every day. From 2009 to the present, it is easily calculated that all the people who ever bought any Bitcoins have spent at least 20 billion USD more buying than they received selling. Since there is no other source of money in the game than the investors themselves, that net loss (half of which accumulated in the past two years) cannot ever decrease. As long as Bitcoin will have a positive market price, that loss is mathematically guaranteed to increase.

The main losers of the Bitcoin Ponzi are estimated to be several million believers, mostly with low or no income, who keep "investing" their savings and spare money into this "revolutionary asset", believing that they are getting richer -- when actually, as in any Ponzi, they lost their money the moment they "invested" it. But there are a few winners, who, having bought hundreds of thousands of coins many years ago, have now became *really* rich --billionaires even -- by taking the money of those victims.

Would the SEC authorize an ETF whose portfolio is defined to consist only of lottery tickets, or slots in an investment pyramid, or franchises of an MLM fraud, or shares of a penny stock that is being pumped up and sold to pensioners through email spam?


Bitcoin does not provide any benefits for society; on the contrary, it has caused enormous damage; and this balance cannot ever improve, because the technology is inherently wasteful, impractical, illegal, and insecure.

By logic, the SEC should assert its regulatory authority over ALL cryptocurrencies (since they do tick all the boxes of the Howey Test), then ban the sale and promotion of Bitcoin and any derivative financial instruments, and criminally prosecute its operators, sellers, promoters, brokers, exchange operators, and all those who have profited from it -- just as they have historically done with the participants of other Ponzi schemes. The US is indeed losing its lead on "blockchain technology", "decentralized finance", and "Web 3.0" to China -- because China already banned all that toxic financial scam-fest, while the US still did not.

I understand the operational and political obstacles that currently prevent the SEC from taking this very necessary course of action. But, at the very least, the SEC should clearly warn the public about the inherent Ponzi and money laundering nature of Bitcoin; and state clearly that any proposals for securities that are in any way based on Bitcoin will be henceforth rejected ipso facto, without further analysis or discussion.


Jorge Stolfi
Ph. D. in Computer Science, Stanford University, 1988
Full Professor, Computer Science Institute of the
State University of Campinas (UNICAMP), Brazil

PS. I should note that, while I am not a citizen or resident of the US, the decisions of the SEC will strongly affect my country, because our financial regulators generally follow the examples and policies of their US counterparts. In particular, they are unlikely to take any action against the cryptocurrency plague as long as the SEC continues to ignore it. That is why I feel compelled to contribute this response to your request for comments.

Last edited on 2022-04-18 14:23:41 by stolfi