What’s Next For Cboe’s Crypto Exchange

With a deal to bring a crypto exchange into its fold, Cboe Global Markets believes that it can now better support bids from ETF issuers to launch a long-sought spot bitcoin fund in the U.S. 

The company’s acquisition of the digital asset exchange ErisX closed on Monday, approximately seven months after it was first announced, giving the smallest of the three U.S. ETF exchanges by assets under management an in-house crypto exchange, futures market and clearing service. 

Cboe Chief Strategy Officer John Deters said that while it’s early days, having a crypto exchange within a regulated entity could help the exchange when it petitions regulators to approve a client’s spot bitcoin ETF bid. 

“Now we've got that extra tool to say, to the extent that the hang-up was discomfort with the venues and the way they're operated today, we have an answer for that piece of it,” he said in an interview Tuesday. 

Having those services within a regulated entity could help prospective bitcoin ETF issuers clear a key demand from the SEC for so-called surveillance-sharing agreements that would allow regulators access to trading, clearing and customer identity data. 

The current crop of issuers has proposed using the average spot price of bitcoin on Binance, Gemini, Coinbase and other larger crypto exchanges rather than trying to get those decentralized exchanges to submit to regulators. 

ErisX Chief Operating Officer Matt Trudeau said the exchange already has a surveillance program in place within its spot and futures markets, but he declined to say specifically if it would meet the regulatory requirements without knowing exactly what the SEC is looking for in a surveillance-sharing agreement. 

He also said his exchange can handle the creation and redemption mechanism for authorized participants, give issuers access to the futures market for hedging purposes and accept crypto as collateral for clearing. With that amount of trading combined, he expects to see liquidity grow within that environment assuming a spot bitcoin ETF eventually lists.  

Five firms have already filed to launch spot products on Cboe Global Markets. 

“Having all of that on a single platform, our expectation is that we'll be able to offer that more efficiently than anybody else,” Trudeau said. 

However, it’s not clear if ErisX alone would be considered a “significant market” under the SEC’s order. Trudeau said the exchange ranges from $30 million to $45 million in daily notional volume. That would place it outside of the top 100 exchanges by daily volume based on data from CoinMarketCap. 

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