NGO calls on SEC to reject spot bitcoin ETF applications

The Securities and Exchange Commission should turn down a slew of recent spot bitcoin exchange-traded fund applications over concerns about possible investor harm, according to letters filed by nonprofit organization Better Markets. 

The crypto industry has seen $2 trillion in losses, several enforcement actions, bankruptcies, lawsuits and criminal prosecutions, Stephen Hall, Better Markets’ legal director and securities specialist, said in a statement on Wednesday. 

“Meanwhile, the principal beneficiaries of the crypto craze are the criminals who use it to facilitate ransomware, money laundering, and illegal conduct of all types. It is within this context that the SEC must evaluate [the] latest wave of Bitcoin ETF filings this month,” Hall said. 

Better Markets filed two letters on Tuesday, commenting specifically on eight applications for a spot bitcoin ETF. Applications for those products have flooded in over the past several months, sparked in part after BlackRock first filed in June. 

The SEC has not yet approved of a spot bitcoin ETF and has rejected previous efforts. Chair Gary Gensler has raised concerns about fraud and manipulation when asked about pending applications. 

“Our comment letters urge the SEC to remain consistent with its previous orders disapproving such filings and reject the eight proposed rule changes pending before the agency,” Hall said. 

Surveillance sharing agreements

Firms vying for a spot bitcoin ETF have named Coinbase as a surveillance sharing partner in an effort to differentiate their applications from ones that have failed in the past and help assuage regulator fears about market manipulation. 

Better Markets said “only a small portion” of global spot bitcoin trading occurs on Coinbase, despite its national presence. 

“Hence, relying on an exchange that represents such a small fraction of the overall trading of bitcoin for market surveillance of a commodity that has a reputation for being heavily manipulated via wash trading would add very little, if any, value to detecting or deterring manipulation of a spot bitcoin-based ETP,”  Hall said in one comment letter. 

Better Markets also noted that Coinbase is not registered with the SEC or the Commodity Futures Trading Commission, while citing its legal trouble with the SEC.

Coinbase declined to comment. 

Better Markets is a nonprofit founded during the wake of the 2008 financial crisis that focuses on public interest in financial markets and reform. 

Other stakeholders have piped in on whether the spot bitcoin ETF applications should go through, including a cricketer, musician and physicist. 

Updates with SEC declining to comment