The Securities and Exchange Commission's historic approval of the first-ever spot exchange-traded funds for bitcoin this week came with a stark reminder of the agency's divisions over cryptocurrencies and skepticism toward a market that some still consider dangerous for investors.
After refusing to greenlight the products for a decade, the SEC was finally forced to enforce its ruling under a US federal appeals court ruling last year. On Thursday, 10 bitcoin ETFs began trading with SEC approval, with sponsors ranging from well-known players like Fidelity and BlackRock to more digital companies including Grayscale and Ark Invest. There was another ETF that was still in operation.
It was a watershed moment for the sector that the agency's head, Gary Gensler, described as a “Wild West” rife with non-compliance and misconduct, and a major win for the cryptocurrency industry after a bitter legal battle with the Securities and Exchange Commission.
But analysts warn that those hoping for a radical change in the regulator's approach to digital assets will be disappointed. The approval also did not convince traditional finance to give a full endorsement, with some players who have launched such exchange-traded funds saying it is up to individual investors to decide whether such products are right for them.
Considerable space in Gensler's statement accompanying the decision was devoted to explaining what the SEC's decision was not. It did not “endorse” cryptocurrency trading platforms or brokers, which are often “noncompliant with federal securities laws and often have conflicts of interest,” he wrote. I've only focused on ETFs that contain Bitcoin and “no way.” [signalled] “The Committee’s readiness to approve listing standards for securities for crypto assets.”
He added that it did not “indicate anything” about the SEC's position on the status of other crypto assets under US securities laws nor on non-compliance by cryptocurrency players.
“While we have approved the listing and trading of certain Bitcoin spot currency [exchange traded product] Today, we neither approved nor endorsed Bitcoin,” concluded Gensler, who described Bitcoin as “first and foremost stocks today.” . . Speculative and volatile assets that are also used for illicit activities including ransomware, money laundering, sanctions evasion and terrorist financing.
“He clearly didn't want to do that,” said Ian Katz, a financial policy analyst at research firm Capital Alpha Partners. “He felt he had to because the court put him in a position where he had no other options. And even then, he waited until the last possible moment to do so. Wednesday was the last day of the deadline set by the SEC to make the decision.” .
Aside from Gensler, the rest of the committee members, both for and against the resolution, also expressed concerns.
“Everyone found something to be upset about,” Katz said. The result “satisfied no one, in short, because Democrats preferred not to approve it, and Republicans believed it should have been approved earlier and in a different way.”
The two Republican commissioners at the Securities and Exchange Commission, who support the cryptocurrency sector, were in favor of the move. But Hester Peirce said the SEC “wasted a decade of opportunities to do our job” and “created an artificial frenzy” around new ETFs “by failing to follow our normal standards and processes.”
Mark Ueda criticized the framework used for approvals as an “invention.”[ing] a novel . . . Standard” that treats the products differently from the Bitcoin futures ETFs previously approved by the Commission. “The SEC’s flawed reasoning. . . “It can resonate for years to come.”
Carolyn Crenshaw, one of the SEC's three Democratic commissioners, objected, saying the approvals are “sound and unhistoric” and set the regulator on a “wayward path that could further sacrifice investor protections.”
Even some well-known players who received SEC approval to launch bitcoin ETFs seemed lukewarm.
Executives at BlackRock, which launched a Bitcoin ETF on the Nasdaq exchange, said the group did not recommend investors allocate a specific amount of money to digital currencies. The offering is “about providing high-quality access to investors who want exposure to bitcoin,” said Robert Mitchnick, global head of digital assets at BlackRock.
Vanguard, which did not sponsor any of the new funds, said Thursday that spot bitcoin ETFs will not be available on its platform. “These products do not align with our offering that focuses on asset classes such as stocks, bonds and cash, which Vanguard views as the building blocks of a balanced, long-term investment portfolio,” she said.
The SEC approvals also highlighted cracks in the US Congress on cryptocurrency policy. “There's no question that the SEC made the wrong decision here,” said Elizabeth Warren, a Democratic senator from Massachusetts and a critic of cryptocurrencies.
“If the SEC is going to allow cryptocurrencies deeper into our financial system, it is more urgent than ever that cryptocurrencies follow basic anti-money laundering rules,” she said.
However, there was some celebration from Republican lawmakers who were supportive of the industry and criticized Gensler for what they saw as regulatory overreach.
Republicans on the House Financial Services Committee, including Chairman Patrick McHenry, called the order a “historic milestone for the future” of digital assets in the United States and a “significant improvement in the SEC’s record of regulation through enforcement.”
But a radical shift in the SEC's approach to cryptocurrencies still seems unlikely. The Securities and Exchange Commission has launched a series of enforcement actions against the cryptocurrency sector targeting a wide range of players, from the largest exchanges to celebrities who allegedly failed to disclose how much they were paid for tokens on the market. Gensler refused to formulate new rules for digital assets, arguing that the current laws are clear enough.
“If anyone thinks for a moment that this indicates some kind of warmth or thawing at Gensler toward cryptocurrencies, no, not at all, not even close,” Katz said. “And he made that very clear.”
Additional reporting by Brooke Masters and Scott Cipolina
