According to former SEC attorney John Reed Stark the current SEC, under the chairmanship of Gary Gensler, is unlikely to approve a Bitcoin spot ETF application centering on significant regulatory concerns, including the ability to prevent fraud and protect investors.
The SEC crypto divide.
Interestingly, Stark believes the issue of crypto regulation has evolved into a partisan divide within the SEC, a dramatic shift from the bipartisan consensus against cryptocurrencies when Stark first began writing about the subject in 2017.
This partisanship has manifested in various ways, including the SEC’s crypto crackdown initiated by former Republican-appointed SEC Chair Jay Clayton, notable for his staunch criticism and sweeping regulatory actions against cryptocurrencies.
The potential impact of the upcoming 2024 U.S. presidential election on the regulatory landscape is another factor to consider, according to Stark. If a Republican is elected, he predicts a significant decrease in the SEC’s crypto-enforcement efforts.
This potential reduction could lead to a more crypto-friendly environment, with the SEC potentially becoming more receptive to approving a Bitcoin spot ETF. Furthermore, other significant crypto-friendly regulatory actions may be more likely to occur.
Stark also highlighted that the SEC, being an independent federal agency, is subject to leadership changes following presidential elections.
Hester Peirce, coined as the “crypto-mom” by Stark for her support of cryptocurrencies, could become the acting Chair if a Republican is elected, with the current Chair, Gensler, likely to resign.
Given Peirce’s lengthy record of dissent towards most crypto-related SEC actions, this change could significantly impact the SEC’s stance on cryptocurrencies.
Better Markets letter to SEC.
Stark also referenced a Better Markets letter to the SEC which noted several issues with the proposed rule changes that would allow the listing and trading of spot Bitcoin ETFs.
These include concerns about manipulation in the Bitcoin market, with allegations of “wash trading” creating false volumes.
Furthermore, Better Markets argued that the proposed surveillance-sharing agreements with trading platforms like Coinbase are insufficient to detect manipulation, given that Coinbase represents only 5% of global Bitcoin trading.
The organization also points out that concentrated ownership of Bitcoin presents a risk, with 50 miners controlling half of the mining capacity and the top 10,000 Bitcoin wallets owning 27% of Bitcoins.
Ultimately, Stark asserted that the SEC’s decisions on Bitcoin ETFs and related regulatory issues are likely to be influenced by various factors, including internal politics, the broader political landscape, and ongoing concerns about market manipulation and investor protection.
As the political spectrum stands today, Stark does not believe a spot Bitcoin ETF will be approved, and it will require changes to the regulatory landscape for it to do so.