Nov 20, 2023

The U.S. Securities and Exchange Commission (SEC) has delayed decisions for both Franklin Templeton and Global X's spot bitcoin ETF applications.

Video transcript

The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. All right, the SEC has delayed decisions for both Franklin Templeton and Global X's spot Bitcoin ETF applications with these delays. Now deadlines move into early 2024. Joining us now to discuss this former SEC special counsel and principal at Hermine Hermine Wang Hermine. Welcome back to the show. Thanks Jen. Good to see you. Hi Lawrence. Good to see you too. Good. Seeing you again. All right, Hermine, what do you make of these application delays? Are we gonna see an approval of a spot Bitcoin ETF next year? Maybe I wouldn't, I would not put bet on uh on January of next year. And these delays I think are symptomatic of the general product that is being offered. So there the SEC is delaying a whole host of them post the gray scale decision. We shouldn't be surprised that they're not going to go through until they're comfortable with all of them. Uh I mean, you know, before I deleted Twitter, of course, you had a lot of people on there that were saying things like, well, if it if Black Rock and Fidelity are on it, then this is gonna happen because they have all this money and, and they know how to do things and they can tell the sec what to do because that's how the world works and you don't know anything plebe. Um So tell me, I, I is that actually a legitimate argument that all of us silly people who think that that regulators at the end of the day do have some amount of power over even the largest asset managers can say, look, we, we just don't want this out there and, and do you think that that's something they will do? It's, I think it's less that they just don't want it out there as much as we saw in the gray scale decision, what they want to continue to avoid, right. They don't want to have any more losses. They suffered a huge loss on the arbitrary and capricious decision. They don't want to also suffer a loss in some of the other things that the court has suggested that they might lose on. And so one other thing that they are probably keeping in mind is how much these spot ETF S are going to probably change the investing market. We know, for example, that right now financial advisors aren't really advising people to diversify into Bitcoin. These are retail investors, right? They're like maybe 12% but certainly that would go up to 77%. And I think that's what the SEC is taking a look at, is that once they're comfortable with all, we'll probably see them say yes to all. But at the same time until they're comfortable with all, we're not going to see some sort of trickle effect of one after another. Slowly. I mean, I want to talk about bit bit go CEO Mike Bels. She's recent comments. He said that the SEC might reject current applications on the basis that exchanges in custody are not separated. Do you agree or maybe even unpack this argument for us? Yes, great. So the reason why this is going to be important to the SEC is that the SEC regulates different roles differently. So they all play a different role. This is true and this is how the different divisions are also split up. We have trading markets over there, we have Corp Fin over there, we have investment management over there. All of those different divisions regulate different registrants. So what the PO CEO is saying there is that the SEC might just not be comfortable because they have not historically viewed those roles as being in, as residing in one entity doing the same function. He also said that there are a lot of risks in that entity Coinbase that are not understood while referring to the fact that Coinbase has been selected by several applicants as a custody partner. What does this mean? And do you think that the fact that Coinbase is involved in this could sway the S ECs decision one way or another. So, Coinbase, despite the litigation that Coinbase is in with the SEC, the SEC is still a regulator, they should not be swayed one way or another by potential animosity about one particular, they should be evaluating it based on what is actually going to be on paper. And the reason why, why is because, and I know that, you know, some people may not believe this in the crypto space. But the reason why is also when we look back at the historical record of when they get vacated by a court, for example, they need to look purely at the record. The court needs to look at it, the agency needs to look at it. And so Coinbase actually having been part of the surveillance mechanism for a lot of these applications should actually probably speak well for it because they themselves have a huge institutional customer base. They are fairly familiar with the way that those pa participants market participants act and what's expected of them. What do you make of all these uh uh spot uh ETF S that are coming out? You know, we're talking here now about the Bitcoin ETF but just now we, we have AAA filing here uh from, from uh blackrock, we have a, you know, a lot of discussion of, oh, that's it. Is it basically as far as the sec concerned? No different be it spot. Bitcoin. Spot e it's just all the same headaches for them. Well, I think that right now we saw Futures Eve, I think is what we just saw. And I think that spot, I think that the spot Bitcoin, they, right now the AC C is still struggling with the post gray scale decision that said that their rationale was insufficient, drawing a distinction between futures and spot. And I think that they believe the SEC still believes that there is a difference. We've seen that they have had discussions post the gray scale decision with a few of the applicants and they those discussions have gone across different divisions. And so what is important here is to remember that whether or not the SEC thinks it's important and thinks that there's a distinction between the two, they're actually going to need to provide evidence of that, which they didn't last time. That's probably going to be a lot of the delay is how much evidence can they provide, which they think will satisfy a court on a second go. I mean, it sounds like you think there might be an approval for an ETF, but it's not going to come as soon as maybe. Um you know, the chatter is predicting on Twitter. I want to turn now to some comments from senior ETF analyst for Bloomberg, Eric Balsas, he wrote on actually X I called it Twitter, but it goes by X now hearing chatter Se C's trading and markets engaged with exchanges this week on spot. Bitcoin ETF S is advising them they'd like the ETF S to do cash creates and has asked them to get in amendments in the next couple of weeks. If this is true, would this not point to an approval sometime soon? Why would the SEC be engaging with firms asking them to do amendments seemingly, uh, being cooper with them if there wasn't going to be an application on the horizon in the next few months? Yeah, I think that again, we're, we're seeing a an almost an audit trail of what the SEC would like to see from people. And then we're going to see whether or not what people, what the registrants and the applicants provide is going to be sufficient for what the SEC wants to put on its audit trail, on its own documentation. So I I think that this is a good sign in that discussions are happening and that the SEC is really struggling with. How do they create something that they will on paper, be comfortable with? It doesn't however tell me that this is a done deal. It tells me that they are looking at the evidence and thinking about how that meshes with an overall arching document trail. So if uh you know, this might not be something you want to answer. But as you mentioned before, you have all these uh financial advisors potentially might uh be interested in, in a uh spot Bitcoin ETF, should it get approved? Um Is this really, really a um significant market potential here? Uh Something that a earth, earth shattering change the face of crypto, that kind of stuff or is this like a lot of hullabaloo about something that might have done something a couple of years ago? But now that we, you know, we already have a future ztfs that are not really doing so well. Um or you know, the interest is not there as it used to be. It's just a much, it all sound and fury signifying nothing. I was gonna say much ado about nothing but to, to that other Shakespeare, you didn't feel like dropping more Shakespeare on us here. So I would say that it's actually, I think yes, there's some sense in which we don't, we just don't know what the demand is going to be. Uh what we do know is that ETF S offer advantages that institutional investors will particularly value and that's going to be that they are able to trade within the same day, within market hours on real time. And that actually captures a lot more of the volatility we would see in Bitcoin that you may not see in some of the more traditional asset classes. And that I think is exciting for institutional investors in particular. Uh The idea that financial advisors would also start making those recommendations for retail investors to diversify their portfolio should be no surprise when you, if you have retail investors who care about diversifying their portfolios, whether or not that means that suddenly you're going to see retail investors be like we love crypto. Can't get enough of it. I don't know because it's limited to Bitcoin and not the entire crypto ecosystem.

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