Wall Street is rushing to apply for Bitcoin ETFs. What is the key supervisory shared agreement filing?

Author: Mary Liu, Bitpush.News

When financial giant BlackRock applied for a spot Bitcoin ETF in the U.S., the crypto community speculated whether this global asset management firm had a better chance of approval compared to those failed "predecessors."

BlackRock's actions have spurred a series of followers, with financial firms like ARK Investment, Valkyrie, and Fidelity also submitting their own Bitcoin ETF applications and incorporating the Shared Supervision Agreement (SSA) into nearly all of their filings.

The SEC's requirement for shared supervision to prevent manipulation in the crypto market is not new; it first appeared in the Winklevoss brothers' Bitcoin ETF application back in 2017. However, a "Coinbase and Nasdaq Information Sharing Terms Sheet" obtained by crypto media CoinDesk revealed more details.

Industry insiders believe that, theoretically, the Information-Sharing Agreement is more likely to influence the SEC's decision, allowing regulators to access additional background information on trades, undoubtedly giving the SEC more leeway.

The subtle difference between SSA and Information-Sharing Agreements can be described as the difference between "push" and "pull."

SSA focuses on data monitoring conducted by the spot exchange Coinbase, which can push suspicious information to regulators, ETF providers, and listing exchanges if deemed necessary.

In contrast, Information-Sharing Agreements allow regulators and ETF providers to request data from exchanges.

The relevant information may pertain to specific trades or traders, and the agreement also compels cryptocurrency exchanges to share data, including Personally Identifiable Information (PII), such as customers' names and addresses. Information-Sharing Agreements have not appeared in any spot Bitcoin ETF filings, but this structure already exists in other markets.

A source familiar with the matter told Coindesk that an important caveat is that information-sharing requests must be very specific, akin to a subpoena.

The anonymous source stated, "This is not just a fishing expedition; it includes all information related to any trades conducted between two specific points in time. The obvious concern is that, almost by definition, cryptocurrency traders do not like to share information about themselves. Overall, this is an aversion to the spirit of cryptocurrency. But for the ETF to succeed, [the companies] must do this."

History of Bitcoin ETF Applications

As early as 2017, the SEC emphasized that Bitcoin ETF applications needed to have supervision-sharing agreements with larger regulated markets, but companies lacked clarity and objective standards in explaining this.

Matt Hougan, Chief Investment Officer of Bitwise Asset Management, stated that incorporating Information-Sharing Agreements makes sense compared to simple supervision-sharing, as it means the ETF does not rely on unregulated markets. Bitwise has applied for ETFs multiple times.

Hougan said in an interview, "Regulators have the power to extract information from regulated markets, while the reported information comes from unregulated markets. Therefore, the SEC wants regulated markets to oversee this monitoring and identify the users behind these trades; I believe this will become an important component of these agreements."

Suspicious Activity Reports

The combination of supervision-sharing and information-sharing is a structure well-known to stock market brokers and exchanges, where regulators have the authority to request more information regarding the trading history of end customers.

For example, whenever a broker's client sends an order to Nasdaq, and that order is flagged as suspicious by the exchange's SMARTS monitoring system, both the broker and the exchange are required to submit a Suspicious Activity Report (SAR).

Dave Weisberger, CEO of cryptocurrency trading platform CoinRoutes, stated that regulators investigating SARs can proceed to "step two," which involves requesting Personally Identifiable Information (PII) to determine if there are common beneficiaries behind specific trades, thereby creating a unified audit trail.

Coinbase, Nasdaq, and BlackRock may argue that if suspicious activity exists (and they are monitoring it), regulators can inquire about who is responsible, but they will not casually disclose Personally Identifiable Information (PII).

Bloomberg ETF analyst Eric Balchunas predicted in an interview with Cointelegraph that BlackRock should be well aware of how to persuade regulators, and its involvement could increase the likelihood of a spot Bitcoin ETF approval from 1% to 50%.