Elliot Johnson argues surveillance agreement key to SEC approval of spot Bitcoin ETF
The investment officer overseeing Canada's spot Bitcoin ETFs unpacks lessons learned on the way to fair, compliant markets and products
In an interview between Elliot Johnson of Evolve ETFs, a Canadian investment firm that manages the EBIT spot Bitcoin ETF, and Joe Carlasare, a commercial litigator supportive of Bitcoin, Johnson commented on what he views as the key to BlackRock’s potential success in obtaining its Bitcoin ETF — its surveillance agreement.
While discussing the constraints that regulators operate within, Johnson touched on the topic of BlackRock’s filing. The distinctive aspect of their filing, he explained, is the surveillance agreement in place between Coinbase and NASDAQ. This agreement allows regulators to survey Bitcoin trades, providing the required oversight and integrity to the marketplace.
“In the rules, there is mention made of the need for there to be surveillance of a venue of significant size, where the underlying asset that you’re going to hold in your ETF trades. Significant size – Coinbase checks that box. The surveillance mechanism is through NASDAQ’s existing technology.”
This surveillance agreement is an element that could give BlackRock an edge in the ETF approval process. However, Cathie Wood’s recent 21Shares spot Bitcoin ETF filing amendment added a similar ‘surveillance-sharing agreement’ to its application, originally filed in April.
Thus, while this appears to be a move to try and outmaneuver Blackrock, Johnson’s insight reaffirms Cathie Wood’s analysis and bullish sentiment on finally getting a spot Bitcoin ETF approved.
ETF approval struggles
Johnson also mentioned how the SEC views Bitcoin as a commodity, not a security. The existence of a large exchange like Coinbase providing trading data to NASDAQ further strengthens the case for BlackRock’s Bitcoin ETF approval.
For years, the U.S. Securities and Exchange Commission (SEC) has refrained from approving Bitcoin ETFs due to concerns about the surveillance and potential manipulation of the underlying spot market where most Bitcoin volume is traded, often outside the U.S. The distinction between the futures market and the spot market, however, has been a consistent point of debate.
In the interview, Johnson explained the importance of a transparent and regulated index, referencing CF benchmarks as an example. The index it uses is highly regulated, eliminates price manipulation, and ensures a fair, efficient price. This feature is critical for a Bitcoin ETF to function properly and suggests a possible reason why BlackRock may be successful.
“The quality of that index will allow BlackRock to do what we do every day, which is to trade over the counter for their Bitcoin at that price and have no slippage,” Johnson pointed out.
The introduction of BlackRock’s Bitcoin ETF, featuring a strong surveillance mechanism, could serve as a turning point in the cryptocurrency space. Johnson predicts that with the potential approval of BlackRock’s Bitcoin ETF, professional investors will see Bitcoin as a necessary asset in their portfolios.
Reflecting on his own journey, Johnson projected an optimistic future where Bitcoin melds with existing financial infrastructures. “I believe that the future will be a future where we have a combination of the existing industry infrastructure… along with Bitcoin as now a key asset within that infrastructure,” he explained.
Johnson referenced the significant shift in investor sentiment since 2017 when discussing how Bitcoin could pose a career risk. In 2021, however, he noted, “Investors were saying to us, ‘I have to know about Bitcoin. There’s too much career risk for me to ignore Bitcoin.'”
Soon, he predicted, investors would view not owning Bitcoin itself as “too much career risk.”