[ Sent to rule-comments@sec.gov on 2021-08-19 ] Subject: CboeBZX-2021-052 Dear Commission, I am a Professor of Computer Science at the State University of Campinas (UNICAMP), in Campinas, Brazil, with a Ph.~D.~from Stanford University (1989). Like almost all other computer scientists, I am very skeptical of cryptocurrencies (``cryptos''). However, while most of my colleagues generally stop paying attention to cryptos after noticing their fundamental flaws, I have been closely following the phenomenon since 2014 --- motivated chiefly by curiosity about its ``sociology'' and ``ecology,'' but without disregarding its technical aspects. Thus, considering my apparently very rare position, I feel obliged to write to you about the SEC's recent and present policy with regard to cryptos and their markets. While I am neither a citizen nor a resident of the US, your policies have a significant impact in my country too; by, among other things, appearing to approve cryptos as legitimate investments, on par with company stocks and physical commodities. You must be aware that financial regulators in many countries tend to follow the SEC's lead in those matters. 1. Cryptocurrencies are not viable payment systems. As systems to process payments, cryptos are inherently beyond abysmal in ALL aspects. Their essential design requirement was *decentralization* --- the absence of any central authority. That design goal necessarily made them more expensive, slower, more inconvenient, and less reliable than traditional systems, like Visa, PayPal, and bank transfers, that do not have such requirement. The advantages that were naively supposed to derive from decentralization --- such as speed, low cost, security, censorship resistance, privacy, immunity to inflation, irreversibility, and convenience --- turned out to be either impossible to achieve, or to be defects rather that virtues. It is now recognized that decentralization is a very costly feature, that has a severe *negative* impact in all those aspects. Cryptos also have failed to achieve another important role of money, namely be a unit of account. The fixed issuance ceiling created the expectation of future value increase, which caused most of the currency to be hoarded by long-term investors or deposited in the accounts of short-term investors and traders at crypto exchanges. Thus the market price of bitcoin, being entirely dependent on the mood and illusions of those investors, has shown exceptional volatility, with changes by $10\%$ or more occurring a matter of minutes. 2. Cryptocurrencies are not a sensible "store of value" Claims by proponents that cryptos could be viable ``stores of value'' are laughable. The price has dropped by 80% over one year twice already, between 2013-11 and 2014-11 and between 2017-12 and 2018-12. In May of this year it dropped by 40% in the span of two weeks. While the price *may* recover, here are no rational arguments that would support that belief. 3. Cryptocurrencies are not a promising technology Crypto promoters often claims that ``blockchain'', the ledger structure used by most cryptos, is a revolutionary technology that will be widely used by computing services, in finance and other areas; and that adoption would somehow make cryptos themselves valuable. However, both claims are false. The blockchain structure is not novel and cannot have a significant use in any such systems. Practically all computer scientists and professional software developers agree that ``blockchain technology'' is technological snake oil. Thus the claims that preventing investment in cryptocurrencies will somehow harm American competitiveness are just nonsense. 4. The only significant use of cryptocurrencies is crime The only significant uses of cryptocurrencies as payments are illegal in one way or another. They include attempts to evade taxes and alimony obligations, bypass international sanctions, finance terrorism, bribe government officials, pay for illegal items (like child pornography, sex trafficking, stolen data, weapons, and drugs), collect investment in fraudulent enterprises, steal coins, and collect ransom. Google searches for "Bitcoin" with any of these terms will turn up innumerable news and law enforcement actions demonstrating these uses. The people who engage in such transfers do not choose crypto for its performance or cost, or for the alleged social benefits of decentralization, but only because there is no other internet money transfer service that does not comply with KYC/AML laws and does not (can not) reverse transactions, for any reason. Indeed, the availability of bitcoin as an irreversible payment method exempted from KYC/AML compliance has turned ransomware from an obscure computer hacking mode into the largest most damaging form of cybercrime today. There cannot be space in the public regulated investment market of any country for enterprises whose only significant ``product'' is a service to criminals. Would the SEC approve public listing of a taxi company that specializes on getaway rides for bank robbers? Or an ETF that promises to hold cocaine as its main asset? 6. Investing in cryptocurrencies is a huge Ponzi scheme As investment instruments, cryptocurrencies are objectively a huge Ponzi scheme. Even if it is allegedly a ``decentralized'' one, it is not a trifle better for investors than a classical one. Investors buy cryptocurrencies because they are led to believe (by an army or amateur and professional promoters) that they will reap huge profits when they sell. And indeed may do obtain such profits. However, their profits come from only one source: the money of other investors. There is simply no other source of money that would return to investors -- with or without profit -- than the investors themselves. Meanwhile, the ``miners'' and other players take a large chunk of the money deposited by new investors. At the current price of over 40'000 USD/BTC, bitcoin miners alone are taking more than 35 million USD per day from the people who buy their bictoin -- and will never return a penny of that. Since 2009, the total amount of money that bitcoin investors lost to miners can be estimated to be over 15 billion USD. Bitcoin investing is therefore a (very) negative-sum gambling game, in which all investors are *guaranteed* to collectively receive less -- a lot less -- than what they collectively invested. Thus bitcoin is very much like other negative sum "investments" such as lotteries, pyramid schemes, MLM schemes, and pump-and-dump penny stock scams. And that negative-sum character makes crypto into an objectively bad investment, that can only attract those who lack the knowledge to understand it. Would the SEC approve of an ETF that promises to invest shareholders' money on lottery tickets, or in franchises of an MLM scheme? 7. Bitcoin's price is sustained by unregulated private "dollars" Moreover, most of the trading volume in the (completely unregulated) overseas exchanges that define the price of bitcoin is presently being conducted in USDT, a digital currency privately issued by the overseas company Tether Inc. The company affirms that USDT are worth the same as USD, because it claimed to have 1 USD in reserve to back each USD. However, the company has never undergone a real independent audit, and is not subject to any regulation. In fact, that claim was found to be false by the NYAG. But the existence of such a reserve actually does not matter: Tether's Terms of Service clearly state that it has no obligation, to anyone, to redeem USDT for USD. Like bitcoin, USDT can be transferred anonymously across the globe without any KYC/AML or sanctions compliance whatsoever. Thus Tether is, in all aspects a re-edition of the former Liberty Reserve, with some "improvements" that make USDT much safer for criminals than the LR dollar. There are more than 60 billion USDT in circulation, and it is widely believed that the price of Bitcoin would collapse if it were not for the copious issuance of USDT to support it. So, would the SEC authorize trading in the US securities market, directly or indirectly, of a purely speculative instrument whose price is defined entirely by trading on unregulated exchanges, in a fantasy currency issued by an unregulated bank? 8. Conclusions In view of all this, I urge the SEC to deny this latest request to legitimize the biggest Ponzi scheme in the world's history, and make it accessible to more vulnerable investors. Further, I plead to the SEC to take a firmer stance against this huge fraud scheme, by stating once and for all that any proposal for an investment instrument that depends in any way on any cryptocurrency will be rejected without any further justification or debate. Thank you for your attention, and all the best, --Jorge Stolfi -- Jorge Stolfi Full Professor/Professor Titular Instituto de Computação/Institute of Computing UNICAMP