Bitwise Asset Management has submitted a revised application for a spot Bitcoin exchange-traded fund (ETF), augmenting it with 40 pages of additional text to address the United States Securities and Exchange Commission’s (SEC) concerns regarding the product. Despite these efforts, a company executive cautioned that it may still not fulfill regulatory standards.
Bitwise is among the six companies whose spot Bitcoin ETF applications have been paused as the SEC deferred its review. This decision followed a court’s reversal of the SEC’s denial of Grayscale Investments’ request to transform its over-the-counter Grayscale Bitcoin Trust into a listed Bitcoin ETF.
Matt Hougan, the Chief Investment Officer at Bitwise, indicated in a thread on X (previously known as Twitter) that if the SEC decides to contest the Grayscale ruling, the situation would revert to its previous state. He noted:
“Should the SEC appeal the Grayscale decision, we revert to the original situation. In this scenario, the necessity arises to demonstrate that the CME bitcoin futures market takes precedence in price discovery over the spot market to qualify as a ‘regulated market of significant size’ for surveillance purposes.”
Chicago’s CME Group, which manages derivatives exchanges including a Bitcoin futures and options market, plays a critical role in this context.
In its revised application, Bitwise tackled the SEC’s reference to the “mixed” or “inconclusive” academic record concerning the lead-lag relationship between Bitcoin futures and spot markets. After examining academic sources cited in 11 prior SEC rejection orders for spot Bitcoin exchange-traded products, Bitwise asserted, “The data compellingly show that the CME is the primary source of price discovery.”
Additionally, Hougan summarized that the updated application convincingly demonstrated that “every robustly designed academic study supports the finding that the CME is ‘significant’”, countering several arguments presented by the SEC in past denial decisions.
The insights in Bitwise’s updated application play a crucial role in satisfying SEC conditions. The SEC mandates that a listing exchange must hold a surveillance-sharing agreement with a regulated market, like the CME Bitcoin futures market, deemed “of significant size.” This condition is applicable if an exchange “cannot prove that other methods to prevent fraudulent and manipulative actions and practices are adequate.” The SEC has deemed this to be the scenario for preceding applicants.
Nonetheless, Hougan alerted, “Even though surveillance sharing agreements with spot exchanges are beneficial, they might not meet the precise regulatory prerequisites.”
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