In a recent interview with Bloomberg TV, BitGo CEO Mike Belshe expressed a cautious outlook on the approval of spot Bitcoin exchange-traded funds (ETFs) by the U.S. SEC.
Belshe’s optimism regarding the potential approval of a spot Bitcoin ETF was accompanied by a dose of realism, indicating that the path to approval might encounter additional hurdles.
He said he is optimistic, but the likelihood of further rejections is high despite positive developments in discussions between ETF applicants and the SEC.
Market structure issues
The key concern highlighted by Belshe revolves around market structure issues, specifically the SEC’s insistence on the separation of exchange and custody roles. This issue has been contentious in various applications, particularly those involving Coinbase custody.
Belshe noted that the SEC’s emphasis on market structure is not unprecedented, citing the existing separation of exchanges from custody in other markets like the CFTC market structure and equities markets. He also suggested aligning with this separation model would benefit the crypto market.
According to Belshe:
“Gary Gensler’s made no secret about this point, you have to separate exchanges from custody.”
The potential rejection of ETF applications could hinge on the SEC’s concern that exchanges and custody functions are not adequately separated. Belshe specifically pointed out risks associated with Coinbase, a chosen custody partner for most ETF applicants.
Belshe believes the SEC will demand a complete separation of these functions before approving the applications.
Market optimism
Analysts estimated a 90% chance of ETF approval in January 2024, but Belshe’s remarks indicate rejection remains a distinct possibility.
The SEC has historically rejected ETF applications, citing concerns about potential market manipulation and insufficient customer protection. However, the applicants have argued that the regulator’s concerns are unfounded based on its approval of Bitcoin futures ETFs.
BitGo’s CEO also drew parallels between Coinbase’s approach and the unsuccessful strategy of its bankrupt competitor, FTX. Belshe referenced Sam Bankman-Fried’s advocacy in Washington, D.C., for a centralized regulatory framework, a model that has faced skepticism following FTX’s collapse.
The anticipation for a spot Bitcoin ETF has been a driving force behind recent Bitcoin price rallies, with the crypto community closely monitoring the SEC’s decisions.
Bitcoin is up roughly 45% since BlackRock filed its ETF application and is currently trading at $36,450 after reaching a high of $38,000 earlier in the week.
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