Data sharing surveillance agreements may be the key to approval, several executives have claimed.
Few things have boosted market sentiment as much as the succession of Bitcoin ETF filings over the past few weeks. Among the applicants is BlackRock, the world’s largest asset manager, alongside other industry giants like WisdomTree, Invesco and Valkyrie.
Historically, the US Securities and Exchanges Commission (SEC) has rejected every Bitcoin ETF due to concerns of market manipulation and lack of regulatory oversight. Rejections aside, the Commission has demonstrated a renewed hostility toward the crypto industry over the past few months, with lawsuits clocking in left, right and centre.
Some executives though remain confident that Bitcoin ETFs are likely to have approval this time around.
One of these is Jeremy Allaire, co-founder and CEO of Circle.
Speaking with Bloomberg at the World Economic Forum yesterday, Allaire said that “progress is being made” with building market structures that can support something like a Bitcoin ETF. He added, “You have mature spot markets, well-regulated custody infrastructure, and good market surveillance.”
Allaire said that past concerns are being addressed, suggesting that “these kinds of products are more likely to be approved for general investor access.”
Good to know
An ETF, or Exchange-Traded Fund, is effectively a basket of investments that you can buy and sell on a stock exchange. It’s a way to invest in a variety of assets like stocks, bonds, or commodities without having to buy each one individually. ETFs are popular because they offer easy access to different markets, they can be bought or sold at any time during the trading day, and they often have lower fees compared to other investment options.
Data surveillance is likely to be the price to pay for SEC approval.
Speaking with CNBC on June 26, Jeremy Schwartz, Global Chief Investment Officer at WisdomTree, said that the difference between the new ETF applications and the ones that were previously rejected is the presence of “data sharing surveillance agreements” between exchanges.
Such agreements are likely to help the SEC feel “more comfortable” when addressing the concern of price manipulation, he claimed.
He said, “The key points revolve around this data sharing surveillance, and how we can work with the SEC in such a way to make them comfortable with the surveillance of those prices.”
Schwartz pointed out that the SEC previously approved Futures ETFs, which are also based on Spot prices, because they share information with the SEC.
Many of those who doubt the SEC will grant approval for a Bitcoin ETF position their opinion on Gary Gensler’s hostile approach to the crypto industry. Under Gensler’s leadership, the Commission has taken the view that more than 60 cryptocurrencies are securities rather than commodities, subjecting them to securities law.
The SEC has also filed serious lawsuits against both Coinbase and Binance, accusing the latter of money laundering and securities law evasion alongside 11 other charges. Perhaps unexpectedly, BlackRock named Coinbase – a vocal opponent of the SEC’s enforcement-as-regulation tactics – as their custodian in its ETF filing.
Schwartz did however point out that the Commission has treated Bitcoin with less hostility than altcoins, viewing it as a commodity rather than a security.
What would approval mean for Bitcoin?
BlackRock has nearly $10 trillion in assets under management. The filing of a Bitcoin ETF alone demonstrates recognition of the growing significance of cryptocurrencies. Approval would be a huge leap toward institutional investment and mass adoption of Bitcoin, not only legitimising its position as an asset class, but also hugely increasing liquidity.
This would very likely result in positive price action. Since BlackRock’s filing, Bitcoin has traded comfortably above $30,000 – the highest it’s been all year.
Approval would also diversify the pool of investors in Bitcoin. As it stands today, many traditional investors may fear investing in volatile, unregulated assets like Bitcoin, but a Bitcoin ETF would provide a means of gaining exposure to Bitcoin without directly buying and trading it.
In terms of the broader crypto market, the SEC’s approval would set Bitcoin even further ahead of the 60+ altcoins that are currently being targeted by the SEC for securities violations. Unlike PoS altcoins, the SEC doesn’t view Bitcoin as a security because its network is genuinely decentralised and its value derives mainly from market forces rather staking protocols.
There might be a downside, though.
A phrase like ‘data surveillance‘ is sure to make many people in Web3 shudder, particularly Bitcoin evangelists.
Although such agreements exist to prevent fraud and manipulation, the fundamental nature of Bitcoin is that it’s a decentralised digital currency that operates on a peer-to-peer network, eliminating the need for intermediaries like banks or financial institutions.
Listing a Bitcoin ETF on an exchange such as Nasdaq naturally opens the door to centralisation in the long run, which does in theory undermine the purpose of the Bitcoin network. Indeed, if approved, a gargantuan asset manager like BlackRock would gain a degree of control over Bitcoin.
A decision is expected to be made by 2024, possibly following the presidential election.
Disclaimer: CryptoPlug does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.