Bitwise Enhances Spot Bitcoin ETF Application with Comprehensive Supporting Argumentation

Bitwise Asset Management has taken a substantial step forward in its quest for a spot Bitcoin exchange-traded fund (ETF) by submitting an amended application that includes an additional 40 pages of detailed arguments aimed at addressing concerns raised by the United States Securities and Exchange Commission (SEC). However, while this move signifies a significant effort to meet regulatory requirements, a Bitwise executive cautioned that it might not be sufficient to secure approval.

Bitwise is one of six financial firms that have had their spot Bitcoin ETF applications put on hold due to the SEC’s decision to delay its evaluation process. This delay followed a court ruling that overturned the SEC’s rejection of Grayscale Investments’ application to transform its over-the-counter Grayscale Bitcoin Trust into a publicly listed BTC ETF.

Bitwise’s Chief Investment Officer, Matt Hougan, took to X (formerly known as Twitter) to outline the potential implications of the SEC’s response to the Grayscale ruling. He explained that if the SEC decides to appeal the Grayscale decision, the situation would revert to the previous state. In such a scenario, he stated:

“We’re back to needing to prove that the CME bitcoin futures market leads price discovery over the spot market such that it can serve as a ‘regulated market of significant size’ for the purpose of surveillance.”

The Chicago-based CME Group operates derivative exchanges, including a BTC futures and options market.

In its amended application, Bitwise tackled what the SEC had referred to as “the ‘mixed’ or ‘inconclusive’ academic record” regarding the relationship between BTC futures and spot markets. Bitwise cited academic studies mentioned in 11 previous SEC disapproval orders for spot BTC exchange-traded products, asserting that “the data convincingly demonstrate that the CME is the primary source of price discovery.”

Hougan further summarized that the amended application provided compelling evidence that “every well-designed academic study supports the conclusion that the CME is ‘significant,'” countering several arguments previously put forth by the SEC in its disapproval decisions.

The conclusions drawn in Bitwise’s amended application carry significant weight in satisfying the SEC’s requirements. The SEC stipulates that a listing exchange must have a surveillance-sharing agreement with a regulated market, such as the CME BTC futures market, “of significant size.” This requirement becomes applicable if an exchange cannot establish that alternative measures to prevent fraudulent and manipulative activities are adequate. The SEC has deemed this to be the case for past applicants.

Hougan, however, offered a note of caution, stating that while surveillance-sharing agreements with spot exchanges are a positive step, they may not fully satisfy the precise regulatory requirements.

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