Recent comments regarding Bitcoin exchanges from Gary Gensler – Chairman of the U.S. Securities and Exchange Commission (SEC) – suggest that his agency may not be so eager to approve the recent wave of Bitcoin spot ETF applications in its mailbox.
The chairman claimed that crypto trading platforms like Coinbase are structured in such a way that makes them open to wash trading and market manipulation.
Problems With Coinbase, According to the SEC
Gensler commented on the exchange during a media availability on Wednesday, shortly after an SEC meeting related to broker-dealers and money market funds, according to The Block.
In its lawsuit against Coinbase last month, the SEC alleged that Coinbase was illegally operating as an unregistered broker, national securities exchange, or clearing agency – services the agency argues should be kept separate.
Gensler echoed this general concern to reporters, saying that crypto exchanges often operate “a bunch of conflicted services.”
“What that means is they could be trading directly against you and market making against you which you would not see, or hope to see on the New York Stock Exchange or NASDAQ,” Gensler explained after the meeting.
Coinbase and a Bitcoin Spot ETF
In June, asset management giant BlackRock filed with the SEC to launch a NASDAQ-traded Bitcoin spot ETF – a product that has thus far been rejected at every turn.
For the regulator, applicants need to find an exchange with which to form a surveillance sharing agreement (SSA) to adequately oversee the Bitcoin spot market, and scan it for market manipulation.
Unlike applicants before it, BlackRock proposed partnering directly with a U.S.-based spot Bitcoin exchange. When asked to identify this exchange by the SEC, it quickly confirmed that it was Coinbase.
Though bullish for Coinbase at the time, concerns about the company’s mixed functions and lack of registration may leave the SEC dissatisfied with applicants using the platform to surveil the market.
According to Bloomberg’s Senior ETF Analyst Eric Balchunas, the firm’s comments pour “cold water” on hopes of such a product getting approved. “This makes [it] seem like [an] SSA could be pointless if this is [a] problem for him,” he wrote to Twitter.
The analyst added, however, that BlackRock may already be working with Coinbase to sort out these issues. “Nasdaq and BlackRock both knew [Gensler] had these kinds of problems [with exchanges],” he said.
Copying BlackRock, other applicants including ARK, Fidelity, and other Cboe-listed funds have also named Coinbase as a surveillance-sharing partner. BlackRock has a notorious 575:1 success rate of getting its products approved by the SEC.
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