Gary Gensler’s “legendary” opposition to the adoption of a spot Bitcoin ETF has been criticized by The Wall Street Journal Editorial Board. The sharply worded opinion piece, which was released on 6 July, lambasted the Gensler-led Securities and Exchange Commission (SEC) for glaring differences in how the commission handles requests for exchange-traded products (ETPs) related to Bitcoin versus more conventional assets and other commodities.
Not the first time rejecting a Bitcoin ETF
Every proposed spot Bitcoin ETP, including the last two sponsors Grayscale and Bitwise, have been unceremoniously rejected by Gensler’s SEC.
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In fact, according to SEC Commissioner Hester Peirce,
“The Commission’s opposition to a spot Bitcoin ETP is nearly legendary.”
Many businesses want to offer ETPs that follow Bitcoin prices in the same manner that they track stock indices. The goal is to give investors a different option from buying and storing Bitcoin directly. Cryptocurrency owners could lose or forget the password to their digital wallets and hackers might steal cryptos from open wallets.
ETPs, which can draw more institutional and individual investors, avoid these security issues. These could improve market liquidity and reduce trading volatility. The SEC must give its approval because ETPs, like stock and commodity ETFs, are legally categorized as “securities.”
Peirce had also questioned why ETPs haven’t received U.S approval, despite growing acceptance elsewhere. Echoing similar sentiments, the WSJ article claimed,
“Mr. Gensler purports to be concerned that Bitcoin trading could be vulnerable to market manipulation, which could harm investors in spot bitcoin ETPs. Yet the $390 billion Bitcoin market is the deepest and most mature of all cryptocurrencies. It would be hard for an investor to game.”
Looks like a never-ending wait?
The Editorial Board also drew attention to Gensler’s two-pronged approach, which makes it extremely difficult to get a spot Bitcoin product approved. To demonstrate that a significant portion of Bitcoin trading occurs on a regulated exchange, for instance, or to demonstrate that the underlying market “possesses a particular resistance to manipulation beyond the protections…of traditional markets,” for example, ETP sponsors may be required to provide such evidence.
According to the WSJ, Gensler is “fully aware” that the first requirement cannot be met because almost all Bitcoin trading now occurs on unregulated cryptocurrency exchanges. Spot Bitcoin ETPs now have to adhere to a stricter threshold that the SEC has “arbitrarily imposed” without “explaining how to satisfy it.” This makes it more difficult for sponsors to satisfy the second criterion.
This piece has been released one week after Grayscale sued the SEC for denying its attempt to start a spot Bitcoin ETF. According to Grayscale, the legislation requires authorities to “provide consistent treatment to identical investment vehicles,” but the SEC’s conflicting rules for spot and Futures Bitcoin ETPs violate this mandate.
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