BlackRock, the world’s leading provider of Exchange Traded Funds (ETFs), have been investigating the disruptive implications of blockchain and cryptocurrency since July, when they set up a working group to assess the technology, sparking rumours that they were establishing a bitcoin ETF.
Although this was dismissed by CEO Larry Fink, who stated that his clients had “zero interest” in trading cryptocurrency, this fresh contact with Coinbase—the leading U.S. cryptocurrency exchange—suggests that such a development could still be under consideration.
A new breed of ETF?
The Securities and Exchange Commission have recently dismissed a raft of ETF proposals, including a fund proposed by the Winklevoss twins, and VanEck and Solid X’s bitcoin-backed fund. This application by the two companies has twice been denied, but is due a third innings with the financial regulator on September 30th.
In their rejections, the regulators cite concerns of potential market manipulation, lack of traditional means of detecting and deterring fraud, and inadequate surveillance-sharing agreements.
Without further information, it’s not possible to determine what would distinguish Coinbase’s potential offering from those that precede it, but many of the problems cited by the SEC relate to the market at large, rather than the details of a particular proposal.
Even the prestige lent by BlackRock would not alone be enough to protect markets against manipulation, or deter fraud. But, Coinbase may have another trick up its sleeve—one source told Business Insider that Coinbase’s ETF would track multiple cryptocurrencies, not just bitcoin. This would likely build off the company’s cryptocurrency index, which includes bitcoin, ether, litecoin, ethereum classic and bitcoin cash.
An ETF image problem?
Despite concerns of manipulation and fraud cited by the SEC, some have suggested that the real reason for the ETF dismissals is very different. Bill Barhydt, CEO of bitcoin payment start-up Abra, claims that thus far, applicants simply haven’t fit the SEC’s image standards:
“I think the issue with the SEC, quite frankly, is that the people who are doing the applications don’t fit the mold of who the SEC is used to approving,” Barhydt told CNBC “I used to work for Goldman Sachs, but if you look at how I’m dressed you probably wouldn’t know it. So I probably, unfortunately, couldn’t go like I am here to a meeting at the SEC to say I’m applying for the ability to issue an ETF.”
Barhydt is not the only one that considers the justification for dismissal weak, and SEC commissioner Hester Peirce published a detailed dissent explaining why her fellow commissioners were wrong to reject the proposals. She argued the existence of a Catch-22 situation, whereby “more institutional participation would ameliorate many of the Commission’s concerns with the bitcoin market that underlie its disapproval order.”
The road to approval
Although Hester’s support places her in the minority of SEC commissioners, she is unlikely to stay there for long, and the recent appointment of Elad Roisman to the SEC has raised hopes that the agency will soon be making the final leap. A well-known advocate of cryptocurrency, Elad Roisman outlined the need for fair regulation in a speech to the Senate Banking Committee hearing in July:
“It is essential that the SEC approach these new challenges in a fair and transparent manner, provide clarity and certainty to the markets and investors, and enforce the laws and regulations that hold market participants accountable” he said.
In the SEC, his role will focus on renewing the SEC’s vision regarding cryptocurrencies, and the possibility of approving cryptocurrency ETFs. His appointment will bring a total of five pro-crypto members to the commission, tipping the balance in favour of approval.
As for Coinbase, the company continues to develop—the firm have doubled the number of staff this year and the CEO remains bullish as ever, telling TechCrunch that “the total number of people in the crypto ecosystem can reach one billion within the next five years, up from around 40 million today.”