Analysis: Coinbase partnership could hamper bitcoin ETF endorsement bid

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WASHINGTON, July 13 (Reuters) – The partnership with Coinbase Global (COIN.O) could hinder rather than help Nasdaq’s (NDAQ.O) bid to win regulatory approval for a bitcoin exchange-traded fund that he wants to launch with BlackRock (BLK.N).

Nasdaq last month filed a proposal with the U.S. Securities and Exchange Commission (SEC) to launch an ETF by BlackRock that would track the bitcoin spot market, sparking a wave of similar filings from Cboe Global Markets (CBOE. Z) for bitcoin ETFs by rivals. including Fidelity and Invesco (IVZ.N).

After a decade of rejections by the SEC, the proposal from BlackRock, the world’s largest asset manager, has reignited industry hopes that the SEC could finally be persuaded to greenlight a bitcoin ETF in which would be a watershed moment for the digital asset.

Speaking to FOX Business last week, BlackRock CEO Larry Fink said the ETF could make it easier for everyday people to invest in crypto. Bitcoin has gained more than 20% since the filing was unveiled.

The SEC rejected previous bitcoin cash ETF proposals on the grounds that they would be vulnerable to manipulation. Nasdaq said last week that it would address this concern by working with Coinbase, the largest US-based crypto exchange, to monitor trading in the underlying bitcoin market. The CBOE proposed a similar monitoring device this week.

That could actually be a problem, according to some lawyers who follow the industry. Last month, the SEC sued Coinbase, stepping up SEC Chairman Gary Gensler’s crackdown on the crypto industry. The SEC said Coinbase trades cryptocurrencies that are considered securities and should be registered as a broker, exchange, and clearinghouse and subject to SEC risk management and investor protection rules.

The SEC allegations, which Coinbase denies, have raised questions about its suitability as a partner of the Nasdaq and the CBOE.

“I don’t think it’s necessarily a badge of honor to say that you’re using an entity that the SEC is suing to provide you with essential investor protection services,” said John Reed Stark, former chief of the Bureau of the SEC on Internet Enforcement. .

“The point of the SEC lawsuit is that there is no transparency about what Coinbase does” as an exchange, he added.

Coinbase has previously said that as a publicly traded company, its business is subject to a host of disclosure rules. And with roughly 56% of bitcoin trading in US dollars, according to the Nasdaq filing, Coinbase is an integral part of the US bitcoin market.

Sui Chung, CEO of CF Benchmarks, said the industry tries to live up to the bar of the SEC and is committed to the “highest possible standards of market integrity and transparency.” CF Benchmarks is the UK-regulated index provider for four bitcoin ETFs on offer, including that of BlackRock.

Representatives for BlackRock, Nasdaq and CBOE declined to comment.

Asked by Reuters about the arrangement on Wednesday, Gensler did not comment on Coinbase specifically, but reiterated previous comments that investors should not expect the same level of integrity and fairness on crypto exchanges as on traditional stock markets.

“CALCULATED DECISION”

Gensler said bitcoin is a crypto token that falls outside the jurisdiction of the SEC, while the cryptocurrency is not subject to the Coinbase litigation. The ETF proposals are unrelated to the Coinbase litigation and should be addressed separately, according to Dickinson Wright attorney Joseph Silvia.

“But ultimately it will be Gensler who decides whether or not the litigation will affect the app,” Silvia added.

Gensler said the crypto industry was plagued by fraud, and crypto companies like Coinbase made a “calculated economic decision” to flout SEC rules. Most crypto companies dispute the jurisdiction of the SEC and argue that the rules are unclear.

In total, the SEC has 240 days after accepting bitcoin ETF filing applications to make a decision.

Chung said the industry wouldn’t spend the resources trying to meet the SEC’s bar if it believed the decision ultimately depended “on the whim of one or two people who might be skeptical of Bitcoin’s merits as a commodity.” ‘investment asset’.

Still, some lawyers said it would likely come down to that.

“Gensler’s statements in no way give me the impression that he’s going to be flexible,” said Richard Marshall, a partner at Katten law firm and a former SEC attorney.

“I don’t see the SEC going to open the doors,” Marshall added.

Reporting by Michelle Price and John McCrank; additional reporting by Hannah Lang; Editing by Will Dunham

Our standards: The Thomson Reuters Trust Principles.

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