US Could Embrace Bitcoin ETF, Says Former SEC Chief

Former SEC Chairman Jay Clayton believes proving spot market efficiency could lead to a U.S. Bitcoin ETF approval.

Bitcoin ETF’s journey to US approval has taken a new turn, with former SEC Chairman Jay Clayton shedding light on what could lead to its acceptance. He suggests the crucial role efficiency could play – if an applicant can demonstrate that the spot market for Bitcoin is as effective as the futures market.

Traditional Finance Firms Show Interest in Bitcoin

Previously, during his tenure at the SEC, Clayton had reservations about Bitcoin trading. However, his perspective has changed significantly, mostly due to the participation of large-scale traditional finance firms in the Bitcoin space. Clayton pointed out his surprise at seeing these industry players willingly apply for spot ETFs. His thoughts came into the limelight during an interview with CNBC.

Among the traditional financial players shifting towards Bitcoin, BlackRock stands out. As the world’s leading asset manager, the company applied for a spot Bitcoin ETF to the SEC last month, triggering an influx of institutional investments into the sector.

The Allure of Spot ETFs

At present, the concept of a spot Bitcoin ETF is hot news as it’s yet to be introduced in the US. In simple terms, an ETF is an investment tool that follows the price of a particular asset. This can include a range of assets such as gold, foreign currencies, and cryptocurrencies. Instead of buying and owning the actual asset, investors can buy shares of these assets via ETFs.

What makes a spot Bitcoin ETF so attractive is that it provides a doorway into Bitcoin investments, negating the need for direct custody of the asset. This is an appealing proposition for many.

However, the potential for Bitcoin price manipulation has made the SEC hesitant to approve a spot Bitcoin ETF. The commission seeks more clarity from applicants on how they will handle a “surveillance-sharing agreement” – an agreement designed to prevent fraudulent and manipulative practices by monitoring market trading, clearing activities, and customer identities.

BlackRock’s Attempts and Recent Developments

In a bid to meet these requirements, BlackRock recently reapplied to the SEC, submitting a refined proposal that included a surveillance agreement with Coinbase – America’s leading cryptocurrency exchange.

In a significant development last month, the SEC approved the Volatility Shares 2x Bitcoin Strategy ETF (BITX), marking the first-ever approval of a leveraged Bitcoin futures ETF in the US. Such an ETF allows investors to buy shares that speculate on Bitcoin’s future value.

As per Clayton’s insights, should applicants convincingly demonstrate the efficiency of a spot market equivalent to a futures one, the SEC might find it challenging to withhold approval for a Bitcoin ETF.