The Securities and Exchange Commission has for the first time approved exchange-traded funds that invest directly in Bitcoin, a move heralded as a landmark event for the roughly $1.7 trillion digital-asset sector that will broaden access to the largest cryptocurrency on Wall Street and beyond.
Now much is resting on the concept that the futures market has already brought crypto assets sufficiently into the financial mainstream.
The SEC was frankly bounced into this decision in response to the loss of some critical legal cases, and puts Bitcoin ever closer to existing financial services players. This does not necessarily mitigate risk.
SEC Chair Gary Gensler said “While we approved the listing and trading of certain spot Bitcoin ETP shares today, we did not approve or endorse Bitcoin,”. “Investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto.”
Crypto zealots have for years argued that a so-called spot fund that invests directly in Bitcoin would be beneficial to investors and would help bring the industry closer to the more highly regulated world of traditional finance. It also suggests a sort of milestone of maturity for the relatively nascent industry, where skirmishes with regulators came to a climax after the collapse of Sam Bankman-Fried’s FTX empire highlighted risks lurking in the industry.
But of course, by definition, the mainstream approval this represents cuts right across the original ideology of Bitcoin already compromised by the significant use of derivatives, and becoming ever more controlled by large financial institutions and regulators.
Even after Gensler went to such lengths to say that the SEC wasn’t giving any seal of approval to Bitcoin, the odds remain that this will expose many more people to crypto’s risks and opportunities. So Caveat Emptor! Let The Buyer Beware!
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Digital Finance Analytics (DFA) Blog
Bitcoin Gets The SEC’s Spot Tick – But Caveat Emptor!
The U.S. Securities and Exchange Commission Chairman Jay Clayton spoke at Stanford University’s Stanford Rock Center for Corporate Governance and discussed his first eight months at the SEC and his enforcement, examination, market, and capital formation priorities. His comments on cryptocurriences were revealing.
SEC is clearly monitoring Initial Coin Offers (ICO) , and is concerned about the lack of protection for investors. There is significant risk of price manipulation, yet the underlying blockchain technologies offer significant opportunity.
“What I see happening in the ICO market today is ‘let me have all of the disclosure freedom of a private placement and all of the secondary activity and ability to market this of a public offering. We decided in 1934: that [having both of these at once] led to a lot of problems.”
“I think we can say that wherever the date is, it’s passed,” he said when asked whether his commission has made ICO rules clear enough yet.
“There are a lot of protections in the way stock trades on exchanges… these platforms that you’re seeing where people are trading cryptocurrencies — there are none of these rules… The opportunity for price manipulation is at orders of magnitude.”
“Blockchain, distributed ledger tech — I don’t think any of us think it’s a fad… it clearly has a applications that are gonna add efficiencies.”
“If this market continues as it is, this will not be the last enforcement actions that we take,” he said of the three ICOs the S.E.C. has moved against so far.
“Some of the offerings that we’re seeing, if the lawyers are telling them it’s OK, they’re just plain wrong,” he said, adding that taking action against lawyers knowing giving advice to ICO issuers that is against current laws is a possibility.
