SEC’s Feedback On Bitcoin Spot ETFs Is More Speed Bump Than Stop Sign
Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), has expressed skepticism about the viability of spot bitcoin ETFs: Photographer: Al Drago/Bloomberg
© 2023 Bloomberg Finance LP
Feedback from the Securities and Exchange Commission (SEC) that bitcoin spot exchange-traded fund (ETF) applications filed by Nasdaq and Cboe on behalf of investment giants BlackRock and Fidelity as inadequate is “not an indication that the product is not viable,” says a person familiar with the applications, who requested anonymity.
Although the SEC has allowed numerous ETFs based on bitcoin futures to trade on regulated exchanges, it has denied every one of the dozens of spot applications that have been submitted to date, often citing its belief that the underlying spot market of bitcoin is subject to fraud and manipulation. Since the derivatives market reflects spot prices, it is difficult to see the logic in allowing the futures-based ETFs but not those based on the underlying bitcoin.Bitcoin fell 4% this morning to below $30,000 after news came out that the financial regulator deemed the latest applications as inadequate, particularly the sections related to a novel surveillance-sharing agreement with a spot-trading bitcoin platform.
Both exchanges are partnering with Coinbase, the largest crypto exchange in the U.S., for this function, according to sources familiar with the application. The exchange’s name was omitted in both initial applications, possibly due to the strange circumstances of Coinbase being subject to a wide-ranging enforcement action from the SEC alleging that it is operating as an unregistered securities exchange.
There was hope that the surveillance programs included in the applications would assuage SEC concerns that the spot bitcoin market is subject to manipulation. In response to a request for comment, SEC spokesperson Ryan White said, “We would decline to comment on the possibility of individual filings.”
The Cboe did not respond to a request for comment from Forbes, though the Wall Street Journal reported that it will refile with Coinbase named in the application. A source familiar with Nasdaq’s thinking said that it is likely to do so as well.
Another source who requested anonymity told Forbes that the applications could include other reputable exchanges, such as EDX, an institutionally focused brokerage backed by the likes of Charles Schwab and Fidelity that launched last week.
From then, the SEC will take another look at the applications and could either accept them or come back with more questions about the specifics of these surveillance agreements.
