Wall Street vies for Bitcoin ETF, what is the key regulatory sharing agreement filing?

Wall Street competes for Bitcoin ETF, what's the crucial regulatory agreement filing?

Author: BlockingBitpushNews Mary Liu

When BlackRock, the financial giant, applied to launch a spot Bitcoin ETF in the United States, the crypto community speculated that the world’s largest asset management company was more likely to receive approval than those failed “pioneers”.

BlackRock’s move has spurred a series of followers, including financial companies such as ARK Investment, Valkyrie, and Fidelity, which have also submitted their own Bitcoin ETF applications and included the Shared Supervision Agreement (SSA) in almost all filings.

The SEC’s requirement for shared supervision to prevent manipulation of the crypto market is not new and first appeared in the Winklevoss brothers’ Bitcoin ETF application in 2017, but a “Coinbase and NASDAQ Information Sharing Terms Table” obtained by Crypto media CoinDesk reveals more details.

Industry insiders believe that in theory, the Information-Sharing Agreement is more likely to affect the US Securities and Exchange Commission’s decision, which allows regulators to access additional background information on transactions, undoubtedly giving the SEC more room for authority.

The subtle difference between SSA and information sharing agreements can be described as the difference between “push” and “pull”.

The SSA focuses on data monitoring conducted by spot exchange Coinbase, which can be pushed to regulatory agencies, ETF providers, and listed exchanges if deemed suspicious.

In contrast, information sharing agreements allow regulators and ETF providers to request data from exchanges.

The relevant information may be related to specific trades or traders, and the agreement also forces cryptocurrency exchanges to share data, including personally identifiable information (PII), such as customers’ names and addresses. The information-sharing agreement does not appear in any spot Bitcoin ETF filings, but this structure already exists in other markets.

An insider told Coindesk that an important warning is that information sharing requests must be very specific, not unlike subpoenas.

The anonymous source said, “This is not just a fishing expedition, it includes all the information attached to any exchange transaction between two specific points in time. The obvious concern is that cryptocurrency traders, almost by definition, do not like to share information about themselves. Overall, it is antithetical to the spirit of cryptocurrency. But in order for the ETF to be successful, [companies] must do so.”

History of Bitcoin ETF Applications

As early as 2017, the SEC emphasized that Bitcoin ETF applications needed to sign supervisory sharing agreements with larger regulated markets, but companies lacked clarity and objective standards in explaining this point.

Matt Hougan, chief investment officer of Bitwise Asset Management, said that incorporating information sharing agreements is meaningful compared to simple supervisory sharing, because this means that the ETF does not rely on unregulated markets. Bitwise has applied for ETFs many times.

When interviewed, Hougan said: “Regulators have the right to extract information from regulated markets, and the reported information comes from unregulated markets. Therefore, the SEC hopes that the regulated market can monitor this monitoring and identify the users behind these transactions. I think this will be an important part of these agreements.”

Suspicious Activity Reports

The combination of supervisory sharing and information sharing is a structure well known to brokers and exchanges in the stock market, and regulatory agencies have the right to request more information about the trading history of final customers.

For example, whenever a broker’s client sends an order to Nasdaq, and the order is marked as suspicious by the exchange’s SMARTS monitoring system, the broker and exchange both need to submit a Suspicious Activity Report (SAR).

Dave Weisberger, CEO of cryptocurrency trading platform CoinRoutes, said that regulatory agencies investigating SARs can continue to execute the “second step”, which is to require the determination of personal identity information (PII), to find out whether there are the same beneficiaries behind specific transactions, and thus create a unified audit trail.

Coinbase, Nasdaq, and BlackRock may say that if there is suspicious activity (and they are monitoring it), regulatory agencies can ask who is doing it, but they will not disclose personal identity information (PII) casually.

Bloomberg ETF analyst Eric Balchunas predicted in an interview with Cointelegraph that BlackRock should know how to convince regulatory agencies that its participation is enough to increase the possibility of approving Bitcoin spot ETFs from 1% to 50%.