The much-anticipated approval of a Bitcoin spot ETF in the United States faces a new hurdle as Securities and Exchange Commission (SEC) Chairman Gary Gensler appears to have cast doubt on the role of Coinbase’s surveillance sharing agreement (SSA) in the approval process.

During a recent webinar, Gensler was pressed about Coinbase’s involvement in the ETF filings. While he refrained from commenting specifically on the filings, his remarks on crypto exchanges and their “conflicting services” and “limited risk monitoring” were far from encouraging. Gensler stated, “What that means is they could be trading directly against you and market making against you, which you would not see, or hope to see on the New York Stock Exchange or NASDAQ.”

The implications of Gensler’s comments are significant, particularly considering the SEC’s recent enforcement action against Coinbase for operating as an unregistered exchange, broker, and clearing agency. This raises questions about the suitability of Coinbase as a market surveillance sharing partner for firms vying for the first Bitcoin spot ETF, including BlackRock and Fidelity.

Eric Balchunas, a Senior ETF analyst for Bloomberg, offered his initial reaction to Gensler’s statements, saying, “Seems like a bit of cold water. This makes it seem like SSA could be pointless if this is a problem for him.” Balchunas further speculated that there might be behind-the-scenes efforts by BlackRock to address these concerns, with the SEC potentially leveraging ETF approval as a means to clean up the issues highlighted by Gensler, as Balchunas stated:

Once again tho, Nasdaq and BlackRock both knew he had these kinds of problems with exchanges. Very possibly they are working with Coinbase to address all this […] which is largely our theory on why approval IS very possible.

However, not everyone shares the optimistic viewpoint. Bias Knox, an industry observer, expressed skepticism, suggesting that Gensler might not be motivated by the merits but rather political considerations. Knox remarked, “GG’s a regulator masquerading as a politician who does not give af about the merits, never has.”

Eric Balchunas answered to Knox: “I can’t disagree I think the same thing,” but emphasized that Gensler could use it as a feather in his cap politically. “I regulated crypto w no help from congress.”

Remarkably, the setback introduced by Gensler’s recent comments adds another layer of uncertainty to the already challenging path to approval. James Seyffart, a research analyst for Bloomberg Intelligence, added, “Gary seemingly pouring some cold water on the Coinbase SSA potential for spot #Bitcoin ETF approval. To us, this is a sign that he might be laying groundwork for potential denial reasonings. Some more goalpost moving maybe…”

The ongoing debate surrounding Bitcoin spot ETF approval has kept analysts and enthusiasts on their toes. Balchunas, who previously put the odds of approval at 50/50, indicated that discussions are underway to reassess these probabilities. He mentioned awaiting technical details regarding the Federal registry, which will likely influence the refreshed odds.

While the SEC’s stance remains uncertain, the broader concerns expressed by Gensler regarding crypto exchanges’ conflicting services and limited risk monitoring cannot be overlooked. The SEC has consistently rejected spot Bitcoin ETF applications due to concerns over transparency and potential market manipulation.

Remarkably, Coinbase and the SEC will meet in court today for the first time for a pre-motion hearing.

At press time, the BTC price stood at $30,332.

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