Two weeks ago, the Wall Street Journal reported that the U.S. Securities and Exchange Commission (SEC) thought the recent spate of applications for spotbitcoin exchangetraded funds (ETF) were inadequate because they weren’t clear and comprehensive.
The SEC wanted the filings to name the exchange that would carry out the surveillance-sharing agreements (SSA) mentioned in the original filings. These SSAs are supposed to show the SEC that potential bitcoin ETF issuers are able to detect fraud and manipulation in the bitcoin market.
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The specific addition of an SSA to these applications is widely viewed as the key to finally getting the bitcoin ETF approved in the United States. Some analysts predict an ETF that tracks that spot market value of bitcoin (as opposed to existing futures-based ETFs) would lead to greater institutional adoption of the cryptocurrency.
Many of the applicants reacted quickly to the SEC and all named Coinbase (COIN) as the exchange that would oversee surveillance on the bitcoin market for them and refiled. On its face, a great choice. Coinbase is a publicly traded company and has a far less sketchy reputation than most other crypto exchanges.
But, is Coinbase the right choice? It might not be.
It doesn’t matter if Coinbase is the right choice
The spot bitcoin ETF has been denied by the SEC multiple times from multiple potential issuers. Previously the SEC stated that those denials were in part due to a lack of something like an SSA. According to those denials, the SEC would want to see an information sharing agreement between the stock exchange the ETF is listed on and a spotbitcoin exchangethat is both 1) of significant size and 2) regulated.
On the former point, Coinbase is not the largest spotbitcoin exchange It currently sees somewhere around 2.5% of global daily trading volume, according to BTC/USD trading pair data from CoinGecko and CoinMarketCap. You can quibble about the details, bitcoin trading exchange volumes could also include trading pairs between many currencies, crypto or otherwise.
And so, the roughly $400 million that represents daily BTC/USD trading on Coinbase is probably adequate to…
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