Opinion: SEC backing of clearing-model change could clear the way for a spot Bitcoin ETF

Approval of FTX’s proposal to the U.S. Securities and Exchange Commission to change the clearing model would lay the groundwork for listing a spot bitcoin-ETF. Bloomberg analyst Eric Balchunas said.

FTX’s proposal to CFTC for a new clearing model, if approved, could open door to satisfy the SEC’s requirement for a federally regulated spot bitcoin mkt. This is what @SBF_FTX tweeted about y’day and @JSeyff wrote about today in note. Approval still longshot but worth watching.. pic.twitter.com/kZjUqnTGVj

— Eric Balchunas (@EricBalchunas) May 24, 2022

The analyst cited a note from his SEC colleague James Seyffart and a tweet by the head of the crypto-derivatives exchange, Sam Bankman-Fried.

The latter said he was working on establishing a federally regulated bitcoin exchange. In the view of the FTX CEO, once implemented the platform would be able to broadcast trading data capable of meeting the regulator’s criteria for detecting fraudulent or manipulative practices.

we’re working on getting a federally regulated spot crypto venue that could help support this! https://t.co/fhJd5BAlNC

— SBF (@SBF_FTX) May 23, 2022

Seyffart noted that FTX’s idea to reform clearing houses involves excluding participation of intermediaries FCMs from trading. If approved, the company could self-custody collateral for derivatives and offer clients leveraged contracts.

Balchunas noted that the FTX initiative brings it closer, but does not guarantee approval of a spot bitcoin ETF. The expert believes the key here is the desire of SEC Chair Gary Gensler to be elevated to Treasury Secretary. To that end, the official wants to demonstrate to the president the reach of the cryptocurrency market within regulatory frameworks.

Gen speaking tho all of these possible avenues are longshots. Likely all that matters is Gensler’s desire to regulate crypto fully, show POTUS he did it and win Treasury Secretary job. Until then, hard to get too optimistic. Still tho this FTX thing is interesting regardless

— Eric Balchunas (@EricBalchunas) May 24, 2022

In April, the SEC approved Teucrium’s futures-based bitcoin ETF (BCFU) under the Securities Exchange Act of 1934.

Earlier, Gensler said that for possible approval, their underlying assets must be Bitcoin futures on the CME. He also mentioned filing the application under the Investment Company Act of 1940.

Registration of BCFU could potentially open the door for a spot bitcoin ETF.

The Investment Company Act of 1940 also applies to Grayscale Investments’ filing to register the GBTC trust as a spot bitcoin ETF. In December 2021 the company conceded that the Commission had violated the law in approving a futures-based instrument tied to the first cryptocurrency.

The final verdict on Grayscale’s application is due on July 6. Balchunas estimates that 95% of interested parties support launching the instrument.

The Commission has not yet approved any spot bitcoin ETF applications. At the same time, the agency has allowed the launch of exchange-traded funds based on bitcoin futures from VanEck, Valkyrie Investments and ProShares.

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