Here’s Why This Former SEC Lawyer Thinks A Spot Bitcoin ETF Isn’t Coming

Recent comments from former SEC Attorney John Reed Stark have further dampened optimism about the regulator approving any of the pending Spot Bitcoin ETF applications.

The United States Securities and Exchange Commission (SEC) has continuously denied applications for a Spot Bitcoin ETF, and Stark has suggested that this trend isn’t going to change anytime soon as the SEC will likely deny all the pending applications due to several “compelling reasons.”

While aligning his opinion with that of Better Markets, Stark stated that the arguments laid forward in the nonprofit’s letters to the SEC “brilliantly” highlighted why the SEC would not approve any of these applications.

Better Markets had, in two separate letters (here and here) dated August 8, laid out arguments why the SEC should reject the proposed rule changes by the Cboe BZX Exchange and the Nasdaq Stock Market “to list and trade shares in Spot bitcoin-based exchange-traded products (ETP).” 

According to them, the Spot Bitcoin market is known to show inflated trading volumes due to illicit practices like market manipulation and wash trading. They argue that the markets are highly concentrated and Bitcoin’s network is maintained by a “select group of individuals and entities.” All this makes any proposed Spot Bitcoin ETP susceptible to manipulation by “bad actors” and puts investors and the public interest at risk. 

In their applications, these exchanges stated that CME Bitcoin futures, a regulated market of significant size, could provide the necessary data and insights relating to any fraud and manipulation in the Spot Bitcoin ETF market. Additionally, they had entered into a surveillance-sharing agreement with Coinbase as an extra measure to prevent fraud and market manipulation.

However, Better Market has labeled these measures as “wholly inadequate.” They argue that the CME Bitcoin futures market is not a “regulated market of significant size” and the surveillance-sharing agreement with Coinbase is insufficient to prevent market manipulation.

Stark believes that the “crypto-regulatory tides could shift exponentially” once the US 2024 elections take place. He noted the political divide regarding crypto and how this has also played out in the SEC’s clampdown on the crypto industry. 

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The SEC has been known to come on hard at several crypto firms, including two of the world’s largest crypto exchanges, Binance and Coinbase, accusing them of securities violations. However, Stark predicts that the SEC will abandon this crypto-enforcement effort and focus more on mostly fraud cases should a Republican get elected as President next year.

Although the elections are slated for November 2024 (long after the SEC might have decided on the pending Spot Bitcoin ETF applications), Stark has forecasted that a GOP-led administration could bring about the approval of a Spot Bitcoin ETF.