BitGo’s CEO expects further complications before a Bitcoin ETF can hit the market

In a recent interview with Bloomberg TV, BitGo CEO Mike Belshe expressed a cautious view on the US SEC’s approval of spot Bitcoin exchange-traded funds (ETFs).

Belshe’s optimism about the potential approval of a spot Bitcoin ETF came with a dose of realism, indicating that the road to approval could face even more hurdles.

He said he is optimistic, but the likelihood of further rejections is high despite positive developments in discussions between ETF applicants and the SEC.

Market structure problems

The main concern highlighted by Belshe relates to market structure issues, particularly the SEC’s emphasis on the separation of exchange and custody roles. This issue has been controversial in several filings, most notably in Coinbase’s custody.

Belshe noted that the SEC’s emphasis on market structure is not unprecedented, citing the existing separation between exchanges and custody in other markets, such as the CFTC market structure and the stock markets. He also suggested that joining this separation model would benefit the crypto market.

According to Belshe:

“Gary Gensler has made no secret on this point, you have to separate exchanges from custody.”

The potential rejection of ETF applications could hinge on the SEC’s concern that the functions of exchanges and custody are not sufficiently separated. Belshe specifically pointed out the risks associated with Coinbase, a chosen custody partner for most ETF applicants.

Belshe believes the SEC will require a complete separation of these functions before approving the applications.

Optimism in the market

Analysts put the odds of ETF approval in January 2024 at 90%, but Belshe’s comments indicate rejection remains a distinct possibility.

The SEC has historically rejected ETF applications, citing concerns about potential market manipulation and inadequate customer protections. However, the applicants have argued that the regulator’s concerns are unfounded based on the approval of Bitcoin futures ETFs.

BitGo’s CEO also drew parallels between Coinbase’s approach and the failed strategy of its bankrupt competitor FTX. Belshe was referring to Sam Bankman-Fried’s advocacy in Washington DC for a centralized regulatory framework, a model that was met with skepticism after the collapse of the FTX.

The prospect of a Bitcoin ETF has been a driving force behind Bitcoin’s recent price gains, with the crypto community keeping a close eye on the SEC’s decisions.

Bitcoin is up about 45% since BlackRock filed its ETF filing and is currently trading at $36,450 after hitting a high of $38,000 earlier this week.