The U.S. Securities and Exchange Commission (SEC) considers the recent spate of Bitcoin (BTC) exchange-traded fund (ETF) applications insufficient due to lack of clarity and comprehensiveness, The Wall Street Journal said in about two weeks. reported before.
The SEC asked the filing to list the names of the exchanges that will further implement the Surveillance-Sharing Agreements (SSAs) that were included in the original filing. The SSA is a mechanism that indicates to the SEC that companies wishing to issue bitcoin ETFs can detect fraud and manipulation in the bitcoin market.
It is widely believed that the specific addition of SSA to the application dossier will be the key to finally getting a Bitcoin ETF approved in the US. Some analysts predict that ETFs tracking the physical market value of Bitcoin (as opposed to existing futures-based ETFs) will lead to broader institutional adoption of Bitcoin. .
Many of the applicants were quick to respond to the SEC’s request and re-applied, naming Coinbase as the exchange responsible for overseeing the Bitcoin market. On the surface, it’s a great choice. Coinbase is a publicly traded company and has a far less dubious reputation than other cryptocurrency exchanges.
But is Coinbase really the right choice? Actually, it may not be so.
It doesn’t matter if Coinbase is the right choice
Bitcoin ETFs have repeatedly been rejected by the SEC from multiple companies seeking to issue them. The SEC has previously said the rejection was partly due to the lack of something like an SSA. The reason for past denials is that the SEC will have an information-sharing agreement between the stock exchange on which the ETF is listed and a 1) sizeable and 2) regulated Bitcoin spot exchange. hopes for
As for the former, Coinbase is not the largest Bitcoin spot exchange. According to data from CoinGecko and CoinMarketCap, the BTC/USD trading pair currently accounts for about 2.5% of the world’s daily trading volume. However, the details are ignored here. This is because the trading volume of bitcoin exchanges includes trading pairs between many currencies, including crypto assets.
Still, Coinbase’s roughly $400 million worth of BTC/USD trades per day is probably enough to “monitor” the market.
But let’s be honest, the problem probably isn’t there.
Rather, the SEC will likely approve or reject the recent ETF application based on its interpretation of whether Coinbase is “regulated.”
The SEC would have been overjoyed to learn that Coinbase, which is in court with the SEC, has been proposed as a market watchdog for Wall Street giants like BlackRock and Fideity. . The lawsuit has nothing to do with the Bitcoin market, but it is still a consideration.
The problem is that it’s a bit unclear whether Coinbase fits this role.
As Coindesk’s Nikhilesh De pointed out, the SEC said in a 2019 directive that Bitcoin “has a very high potential for market manipulation” and that “in order to prevent manipulation, the We need a surveillance-sharing agreement with a regulated, sizeable marketplace.”
Related article: Will 2023 be the year of the Bitcoin ETF?
Unfortunately, there is no strict definition of “regulated market” and “substantial scale.” Yes, it’s unclear.
A key part of the current ETF debate is that Coinbase is not exactly the right data provider.
Fears of increased SEC authority
The unfortunate reality is that the natural course of this discussion will be to take surveillance to the next level through intelligence-sharing agreements.
As CoinDesk reporter Ian Allison noted:
“More likely to influence SEC decisions is information-sharing agreements, which reverse positions of power and give regulators the right to demand additional background information.”
When this happens, the story changes.
The information-sharing agreement requires the SEC to require specific information about end-client Bitcoin ETF trading histories before surveillance providers report to regulators, “All is OK, Captain!” enable.
Crucially, information-sharing agreements may also include personal information such as the customer’s name and address. This may not be good news for privacy advocates in the crypto industry. But it’s also a perfectly natural consequence of bringing a Bitcoin ETF to market, or financializing crypto assets.
Want a highly regulated Bitcoin product? This is the regulation we wanted.
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜ Original: Want a Spot Market Bitcoin ETF? Then Deal With the Consequences