Excitement is building again over the long-awaited approval of a Bitcoin (BTC) exchange-traded fund (ETF). This time, BlackRock, the world’s largest asset management company, has applied for a Bitcoin ETF. Trade Commission) will finally approve a Bitcoin ETF.
Expectations for spot ETFs
In July 2013, Cameron Winklevoss and Tyler Winklevoss applied for a Bitcoin ETF. Eleven years later, the industry is still waiting for a Bitcoin ETF to materialize.
why it matters
A Bitcoin ETF, if approved, would allow a wide range of retail investors in the U.S. to buy Bitcoin as an asset without the hassle of setting up a wallet or trading on a sometimes cumbersome cryptocurrency exchange. will be able to gain exposure to Additionally, professional investors like multi-million dollar family offices will also have access to regulated (and therefore “safe”) bitcoin investment products. That’s why proponents are eagerly awaiting approval of a Bitcoin ETF.
Difference from before
Over two years ago, Canada’s Ontario Securities and Exchange Commission approved the first Bitcoin ETF in North America. Hopes were high that it would soon be approved in the United States. In 2021, the SEC will approve the first bitcoin futures ETF, raising the possibility of other similar products.
As of now, there is still no physical-based Bitcoin ETF in the US, but BlackRock’s filing a few weeks ago showed that it may finally be time for that to change. Over the past few weeks, there have been six new applications for Bitcoin ETFs in the US. Has the market evolved enough to accommodate ETFs? Can asset managers convince the SEC that ETFs are safe?
The big difference in this filing is that the company that filed (in part due to pressure from the SEC) spent a lot of time on surveillance sharing agreements. All of the financial giants that have applied for ETFs have designated Coinbase as a partner in their surveillance sharing agreements.
Related article: BlackRock’s Bitcoin ETF Resubmits Application, Identifying Coinbase as Partner in Surveillance Sharing Agreement
The SEC has noted the importance of surveillance-sharing agreements in the past. In 2019, when it rejected a Bitcoin ETF application from Bitwise, it issued a 112-page directive, stating that Bitcoin has a high potential for market manipulation, and to prevent it. It calls for “monitoring-sharing agreements with regulated and sizable markets related to underlying assets.”
The problem is the lack of a clear definition of what a “regulated, sizeable market” refers to, and Bloomberg Intelligence analysts who have been following the Bitcoin ETF application for years. James Seyffart said.
“So far, each ETF application review has been postponed until the last minute and ultimately rejected. In the process, the SEC sometimes makes comments.[…]I have no doubt that it will be judged that way this time as well,” Seyfert said.
What is a “substantial regulated market”?
Coinbase is undeniably the largest cryptocurrency exchange in the United States. According to CoinGecko, its 24-hour trading volume has more than doubled compared to its second-largest rival, Kraken. Most of it seems to come from Bitcoin.
The SEC itself has also acknowledged Coinbase’s position in the United States, stating that Coinbase is “one of the largest cryptocurrency trading platforms in the world and the largest trading platform in the United States,” in its lawsuit against Coinbase.
The SEC lawsuit against Coinbase has nothing to do with its bitcoin market, which is probably why the asset manager filing the ETF singled out Coinbase as a partner in the surveillance sharing agreement.
The question is whether the SEC agrees that Coinbase operates a regulated and sizable Bitcoin market, and whether that is required for approval.
As of last year, the SEC did not appear to believe there was a regulated market for Bitcoin. Specifically, when it approved Teucrium’s Bitcoin futures ETF in April 2022, the SEC issued a footnote stating that “the physical Bitcoin market is not currently ‘regulated,'” indicating that the Bitcoin futures market should not be monitored. Explained why sharing agreements cannot be used for physical ETFs.
Meanwhile, filings filed by BlackRock and the Nasdaq, which plans to list BlackRock’s ETFs, cites past ETF rejections and argues that there shouldn’t be a sizeable regulated market in the first place. are doing.
“The regulated, sizeable market criteria does not require the Bitcoin physical market to be regulated in order for the SEC to approve this application, nor does the precedent require that the spot commodity or currency It has become clear that the underlying market being a regulated market is in fact the exception: these mostly unregulated currency and commodity markets, such as those under SEC supervision. Although it does not provide protection, the SEC has consistently looked to oversight sharing agreements with underlying futures markets to determine whether such instruments comply with the law.”
BlackRock and Nasdaq argue that the SEC’s “substantial scale” criteria should be sufficient for the Bitcoin futures market.
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Original: Will 2023 Be the Year of the Bitcoin ETF?