Spot Bitcoin ETF Hopes Dampened by BitGo CEO's Market Structure Concerns

In a recent interview, BitGo CEO Mike Belshe shared insights on the prospects of a Bitcoin ETF approval by the U.S. Securities and Exchange Commission (SEC), as reported by Decrypt.

According to Decrypt’s report, Belshe conveyed a mix of optimism and caution, acknowledging progress in discussions between ETF applicants and the SEC but also predicting further rejections.Belshe’s optimism stems from the ongoing conversations indicating advancements toward a spot Bitcoin ETF. However, he tempered this with a realistic outlook, suggesting that the path to approval might face additional obstacles.

The primary concern he raised relates to market structure issues, particularly the SEC’s emphasis on the separation of exchange and custody roles. This issue has been a point of contention in several applications, notably those involving Coinbase custody.

The SEC’s stance on market structure isn’t new, as Belshe pointed out in his interview with Bloomberg News. He highlighted the existing separation of exchanges from custody in other markets, such as the CFTC market structure and equities markets, suggesting that the crypto market should follow suit.The anticipation for a spot Bitcoin ETF has been a catalyst for Bitcoin price rallies, with the crypto community closely watching the SEC’s moves.

Belshe also drew parallels between Coinbase’s approach and the failed strategy of its bankrupt competitor, FTX. He referenced Sam Bankman-Fried’s advocacy in Washington, D.C., for a regulatory framework that centralized various functions, a model that has since been viewed skeptically following FTX’s collapse.

Kevin O’Leary, the chairman of O’Leary Ventures and a renowned figure from “Shark Tank,” recently projected an 18-month timeline for the SEc. This insight was shared during the Benzinga Fintech Deal Day & Awards, as reported by Kevin Helms for News.O’Leary emphasized the necessity of a compliant crypto exchange for the SEC’s approval of a spot Bitcoin ETF. He pointed out that the SEC’s requirement for a transparent and compliant exchange to verify daily spot market pricing is a major hurdle in the approval process.

Currently, the absence of such an exchange stands as a significant barrier.Coinbase, a leading Nasdaq-listed cryptocurrency exchange, was mentioned by O’Leary as a potential candidate for achieving this compliance.

O’Leary identified two primary obstacles for institutional investment in Bitcoin: SEC compliance and Bitcoin’s 24/7 trading nature. He explained that the continuous trading of Bitcoin poses difficulties for institutional investors, who typically limit exposure to any one asset class to 5%. Unlike stocks, which can be rebalanced daily due to market closure, Bitcoin’s round-the-clock trading complicates this rebalancing process.

Despite these challenges, O’Leary revealed that major institutions are poised to invest in Bitcoin, attracted by its liquidity and status as a store of wealth. He noted that these institutions are primarily interested in Bitcoin, rather than the broader cryptocurrency market.With SEC Chairman Gary Gensler set to remain in his position for another 18 months, O’Leary anticipates that the approval of a spot Bitcoin ETF could coincide with the end of Gensler’s current term.

He concluded by highlighting the significant impact that SEC approval of a spot Bitcoin ETF would have on Bitcoin demand, echoing Microstrategy Chairman Michael Saylor’s expectation of a doubling in Bitcoin demand following the halving and the approval of spot Bitcoin ETFs.

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