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Spot Bitcoin ETF Approval: An Ongoing Process
With most applications for a spot bitcoin ETF in an extended waiting period after the Securities and Exchange Commission last month delayed the ongoing processes with fresh public comment periods, the industry has gone from the excitement of waiting for a possible approval with bated breath to the doldrums of now just waiting. The Block spoke about all the recent moves with Sui Chung, the CEO of Kraken-subsidiary CF Benchmarks that provides the index set to be used by some of the proposed spot bitcoin ETFs. Chung, who has been intimately involved in the bitcoin ETF filing process over the years, spoke about the ongoing approval process and what might need to happen before one of the proposed funds eventually comes to market.
A Slow and Steady Progress
Sui Chung highlights that progress has been made in terms of cryptocurrency ETFs, albeit slowly. The recent extension of the comment period by the SEC for spot bitcoin ETFs indicates a positive step forward. Additionally, the approval of ether futures ETFs provides an opportunity for more individuals within the financial investment community to learn about cryptocurrencies and their ecosystem. Chung emphasizes that while developments in the crypto space often occur rapidly, traditional financial sectors move at a slower pace.
Internal Discourse within SEC
The discourse regarding spot bitcoin ETFs is happening within the Securities and Exchange Commission (SEC). The SEC does read and consider public comments as part of their internal discussions. However, there is no direct dialogue or right of reply between commenters and the SEC. While it can be frustrating, this is how decisions are made within regulatory bodies like the SEC.
Differences between Spot and Futures Markets
The SEC’s caution towards spot bitcoin ETFs stems from its belief that these instruments are not subject to the same regulation as futures-based ETFs. The SEC acknowledges that futures contracts, which are regulated by the Commodity Futures Trading Commission (CFTC), can be included in ETFs. However, the SEC considers spot bitcoin, traded on unregulated markets, to be fundamentally different. Some argue that spot and futures markets are similar due to the close correlation between their prices.
The Influence of Futures on Spot Market
According to academic literature, the futures market often leads the spot market in terms of price formation. This means that price discovery is primarily happening in the futures market, with the spot market following its lead. The SEC has allowed other commodity ETFs, such as physical gold ETFs, because they believe that the futures market for gold is where price discovery occurs and it is a regulated market.
Size and Transparency
The size of the spot bitcoin market is not necessarily a determining factor in the SEC’s decision-making process. In comparison, the physical gold spot market’s size is unknown since it is not traded on a screen but through broker interactions. Crypto markets differ because central order books are available on the internet for monitoring purposes.
Practical Considerations
The delay in making a decision on spot bitcoin ETFs can be attributed partly to practicalities. The SEC needs to produce an order explaining their decision, which requires extensive research and analysis. Additionally, the timing of this process plays a role, as writing a 200-page essay during August is unlikely due to summer vacations.
Surveillance Sharing Agreements
Surveillance sharing agreements proposed by some exchanges aim to provide confidence that there is no market manipulation occurring in the spot market. While exchanges are not accountable for manipulative actions taken by individuals, they are responsible for implementing processes and procedures to prevent such activities.
Hot Take: The Road to Spot Bitcoin ETF Approval
The approval of a spot bitcoin ETF remains an ongoing process that requires careful consideration from the SEC. Progress has been made with the extension of the comment period and the approval of ether futures ETFs. However, the SEC’s caution towards spot bitcoin ETFs stems from their belief that the spot market is not subject to sufficient regulation. While academic literature suggests that futures markets often lead spot markets in price formation, the SEC maintains a different perspective. Practical considerations, such as timing and extensive research, also contribute to the delay in decision-making. Ultimately, the road to spot bitcoin ETF approval requires further discourse and understanding between regulators and industry participants.
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Source: [The Block](https://www.theblockcrypto.com/post/128920/interview-kraken-cf-benchmarks-ceo-spot-bitcoin-etf-approval)
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