Industry Leaders React to Bitcoin ETF Approval as SEC Commissioners Differ…What Did They Say?
The Securities and Exchange Commission (SEC) has finally granted approval for a series of cryptocurrency Exchange-Traded Funds (ETFs), signaling a new era for investment opportunities and affirming the increasing significance of cryptocurrencies in mainstream financial markets.
This decision, announced on January 10, opens doors to a diverse range of investors and solidifies the growing relevance of digital assets in traditional portfolios.
SEC Approval and Rule Changes
The SEC’s approval extends to the 19b-4 applications submitted by prominent financial entities, including ARK 21Shares, Invesco Galaxy, VanEck, WisdomTree, Fidelity, Valkyrie, BlackRock, Grayscale, Bitwise, Hashdex, and Franklin Templeton.
This endorsement marks a crucial acceptance of rule changes that facilitate the listing and trading of spot Bitcoin ETFs on their respective exchanges.
That being said, not all SEC commissioners expressed satisfaction. Here are the key statements capturing their reactions:
Chair Gary Gensler’s Statement
SEC Chair Gary Gensler emphasized the Commission’s commitment to acting within the confines of the law and respecting judicial interpretations. He acknowledged the shift in circumstances, citing a court ruling that challenged the Commission’s disapproval of Grayscale’s proposed ETP.
Gensler stated, “Circumstances, however, have changed,” leading to the approval of spot Bitcoin ETPs.
Gensler clarified that the SEC evaluates rule filings based on their consistency with the Exchange Act and regulations, with a focus on protecting investors and the public interest. Notably, he highlighted that the approval is specific to ETPs holding non-security commodities like Bitcoin and does not signify the Commission’s readiness to approve crypto asset securities.
Investor Protections
To address potential risks associated with cryptocurrency investments, Gensler outlined three key investor protections resulting from the SEC’s approval:
- Disclosure Requirements: Sponsors of Bitcoin ETPs must provide comprehensive and truthful disclosure about their products, ensuring investors have access to relevant information.
- Regulated Exchanges: Approved ETPs will be listed and traded on registered national securities exchanges, subject to rules designed to prevent fraud and manipulation. The SEC will closely monitor these exchanges to ensure compliance.
- Existing Regulations: Established rules and standards, such as Regulation Best Interest for broker-dealers and fiduciary duties under the Investment Advisers Act for investment advisers, will apply to the purchase and sale of approved ETPs.
Commissioner Hester M. Peirce’s Perspective
Commissioner Hester M. Peirce celebrated the end of a decade-long saga, emphasizing the importance of investor access to innovative products like spot Bitcoin ETPs. Peirce criticized the Commission’s inconsistent treatment of Bitcoin-related ETP applications, highlighting the industry’s perseverance despite regulatory obstacles.
Peirce expressed concerns about the negative impact of the SEC’s actions on its reputation, resource allocation, and understanding of its regulatory role. She urged the Commission to learn from this experience and avoid hindering future interactions between the industry and regulatory authorities.
Commissioner Mark T. Uyeda’s Dissent
While supporting the approval of spot Bitcoin ETPs under certain standards, Commissioner Mark T. Uyeda raised concerns about the Commission’s flawed reasoning.
He criticized the Commission’s continued use of the “significant market” test, arguing that it unfairly singled out spot Bitcoin ETPs for disparate treatment.
Uyeda also questioned the Commission’s invention of a new standard and suggested that the motivation behind accelerating the approval might be aimed at preventing a first-mover advantage among spot Bitcoin ETPs, potentially impacting competition in the market.
Commissioner Caroline A. Crenshaw
Commissioner Caroline A. Crenshaw strongly dissents from the SEC’s recent approval of bitcoin-based products. She raises significant concerns about the global spot markets underlying these products, emphasizing the prevalence of fraud and manipulation in bitcoin trading.
Crenshaw argues that the decentralized and fragmented nature of spot bitcoin markets makes them susceptible to abuse, with limited oversight and regulatory control.
The Commissioner questions the SEC’s departure from its historical stance, noting consistent disapproval of similar proposals in the past five years due to perceived risks and inadequate investor safeguards.
She specifically critiques the approval’s reliance on a “correlation” argument between the CME bitcoin futures market and the spot bitcoin market, expressing skepticism about its effectiveness in detecting and preventing fraud.
Crenshaw also points to concentration of ownership among bitcoin holders, potential money laundering risks, and the broader public interest implications of approving these products. She highlights the possibility of criminals exploiting bitcoin for illicit activities and questions whether the SEC’s approval aligns with the government’s efforts to combat financial crimes.
Furthermore, the Commissioner raises concerns about the future operational challenges of these approved products, such as custody issues, volatility, and the potential impact of trading pauses on investors.
She concludes by questioning the underlying purpose of integrating bitcoin into the traditional financial system, expressing doubt about the revolutionary claims made by proponents of such products and emphasizing the need for robust investor protection measures.
It is worth noting that Democrats Caroline Crenshaw and Jaime Lizárraga were the only SEC commissioners opposing the approval of the spot #Bitcoin ETF.
Moreover, Dennis Kelleher, CEO of investor advocacy think tank Better Markets, warned that bitcoin was still vulnerable to crypto fraudsters and said approving the ETFs was a “historic mistake.”
“The SEC’s action today has changed nothing about this worthless financial product: bitcoin and crypto still have no legitimate use,” he said.
Crypto Community Is Over the Moon
On another note, the crypto community was baffled by this long-awaited approval. In fact, Andrew Bond, Managing Director and Senior Fintech Analyst at Rosenblatt Securities, described it as a “huge positive for the institutionalization of bitcoin as an asset class.”
Standard Chartered analysts also anticipate significant inflows, estimating the ETFs could draw $50 billion to $100 billion this year alone, hailing it as a game-changer for bitcoin.
Steven McClurg, Chief Investment Officer at Valkyrie, expressed anticipation for the unprecedented launch of 10 similar ETFs on the same day, and Douglas Yones, Head of Exchange Traded Products at the New York Stock Exchange, sees the approval as a milestone for the ETF industry.
Moreover, Cynthia Lo Bessette, Head of Digital Asset Management at Fidelity, welcomed the new products, expecting increased choice for investors engaging with crypto.
Jim Angel, Associate Professor at Georgetown’s McDonough School of Business, highlighted the groundbreaking nature of the approval, stating that once the dam has been breached, it will be challenging for the SEC to maintain its previous cautious stance.
Grayscale CEO Michael Sonnenshein expressed excitement at the prospect of democratizing access to bitcoin, emphasizing its potential to change the world.
Last but not least, Binance CEO Richard Teng, expressed that the approval of Bitcoin ETFs marks a significant milestone, reflecting a heightened level of acceptance, maturity, and mainstream integration within the crypto market. This development not only adds credibility to the industry but also fosters an environment conducive to further innovation.
According to him, Bitcoin ETFs are poised to simplify entry into the crypto market, attracting a broader investor base and enhancing liquidity. Drawing parallels to the introduction of Gold ETFs in 2004, the potential for positive market dynamics is underscored, especially considering the concurrent Bitcoin Halving event. The accessibility and cost-effectiveness of ETFs offer mainstream users a familiar mechanism for venturing into crypto investments.
Teng also explained that the forthcoming bitcoin spot ETF is expected to elevate the industry’s credibility, instilling trust among a wider audience. This coexistence of direct bitcoin investment and regulated instruments paves the way for diverse investment strategies, accommodating various risk profiles and preferences. This signifies an exciting era of adoption and legitimacy, not just for bitcoin but also for the broader crypto space.
In addition to that, anticipation surrounds future milestones, including the upcoming Bitcoin Halving, prospects of an ETH ETF, traditional finance’s interest in digital asset custody, and more in the ensuing weeks and months.
Regardless of one’s stance on the approval of ETFs tracking bitcoin, it undeniably signifies a monumental moment in the crypto industry, propelling it forward into a new era of recognition and integration within traditional financial markets. In fact, this development has the potential to reshape the landscape, providing both skeptics and enthusiasts with an undeniable marker of the industry’s evolution.
As the ETFs commence trading and the market dynamics unfold, the impact of this decision on investor sentiment, adoption, and the broader crypto space will become more apparent.
Whether viewed as a positive stride towards mainstream acceptance or a contentious leap into unreached territory, the approval of these ETFs is a decisive step that will undoubtedly shape the future trajectory of the crypto industry.
