SEC Chairman on BTC ETF: “Progress is being made” – issues “not trivial”


We are into the ninth month of the year, and we are still waiting patiently for the SEC to approve a Bitcoin Exchange-Traded Fund (ETF). Yes, the VanEck consortium decided to forego the retail market for now and launch a Bitcoin Trust for institutional investors only, but the SEC is still pondering what to do with three BTC ETF applications that presently await decisions. Chairman Jay Clayton appeared in an interview with Bob Pisani on CNBC and said that concerns are lingering, but “progress is being made”.

By the end of 2018, Clayton and his staff at the SEC had managed to turn down a dozen requests for a Bitcoin ETF Trust. The reasons cited last November were many, but the primary ones focused on the unregulated nature of global crypto exchanges, the potential for price manipulation, the lack of monitoring systems, the preponderance of fraud and hacking compromises, and the absence of acceptable custody solutions.

Much has changed in nearly a year. Coinbase, Fidelity, and the soon to be launched Bakkt exchange have addressed custody concerns, and other exchanges will surely follow. The Nasdaq has shared its top-of-the-line monitoring software with the major exchanges in the United States, and Bakkt and Fidelity are fully regulated, thereby setting a standard for the industry to emulate. Clayton has acknowledged that true progress has been made, that a BTC ETF launch remains a possibility, and that his agency’s concerns, however, are “not trivial”.

Security issues are major hot buttons, which Clayton emphasized with Pisani:

We’re engaging on this, but there are a couple of things about it that we need to feel comfortable with. The first is custody: custody is a long-standing requirement in our markets, and if you say you have something you really have it.

Clayton then reiterated another primary concern with Pisani:

An even harder question given that they trade on largely unregulated exchanges is how can we be sure that those prices aren’t subject to significant manipulation? Now progress is being made, but people needed to answer these hard questions for us to be comfortable that this was the appropriate kind of product.

Bitwise Asset Management has an application “in the fire”, so to speak, and has provided several research reports for the edification of the SEC on matters that make it feel “uncomfortable”. Perhaps, the one report that made the greatest impression had to do with Bitcoin volumes. By eliminating so-called “fake” volume, BTC’s daily turnover is actually concentrated in roughly ten exchanges, most all of which are located in the U.S. These exchanges are also in compliance with “Money Transfer Agent” statutes, which does convey a partial quasi-regulated status upon each of these exchanges.

Bitwise is pairing up with Arca on the NYSE, while VanEck is teaming up with SolidX, but each of their respective applications, submitted around the end of January, have both been delayed twice. The statutory maximums for delays run out on October 13th and the 18th for these applications, special dates to be circled on your calendar. No matter which way the decisions go, there will be market implications.

There is also a third application on the table, this one from the Wilshire Phoenix financial institution in New York. It was submitted a few months back. It was also recently reported that the SEC will surely delay its decision for now. The statutory maximum for delaying a decision is 275 days from the original submission date.

Are we any closer to having general retail access to an ETF by the public at large? An ETF would solve several issues related to custody, monitoring, security, and easy access, but it is still pure speculation at this point. Although moved by how the crypto market has responded to his agency’s concerns, Clayton concluded that there is still “work left to be done”.

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