- The SEC has approved the listing of several spot bitcoin exchange-traded funds (ETFs), reversing its long-held position against such products due to recent court rulings forcing its hand.
- SEC Chair Gensler explained the approval is limited to bitcoin ETFs and does not signal openness to other crypto assets, which the SEC still considers securities subject to regulation.
- While approving bitcoin ETFs, the SEC is compelling sponsors to fully disclose risks and will closely monitor trading activity, reiterating cautions about the risks of bitcoin investments.
In a statement released today, Gensler said the circumstances around bitcoin ETFs have changed, leading the SEC to approve filings similar to those denied in the past. A recent court decision forced the SEC’s hand after judges said the agency failed to properly explain why it rejected a bitcoin ETF proposed by Grayscale.
Past Denials Overturned
Since 2018, the SEC rejected over 20 proposed rule changes to list bitcoin ETFs on exchanges. One notable filing was from Grayscale to convert its popular Grayscale Bitcoin Trust into an ETF. However, the U.S. Court of Appeals ruled the SEC did not adequately justify its disapproval of Grayscale’s filing. This legal defeat was a primary factor in the SEC’s decision to now greenlight bitcoin ETFs.
Approval Limited to Bitcoin
Gensler stressed this approval is limited to ETFs holding bitcoin and does not signal openness to crypto asset securities. He reiterated his view that most cryptocurrencies qualify as securities subject to SEC regulation. The agency remains neutral on the merits of bitcoin and is simply following the law as interpreted by the courts.
Protections for Investors
Despite approving bitcoin ETFs, the SEC is compelling sponsors to fully disclose risks. Exchange rules against fraud and manipulation will also apply. The SEC will monitor trading activity closely and investigate any misconduct. Broker-dealers and investment advisors must still follow conduct regulations when handling bitcoin ETFs.
Level Playing Field
In a bid to promote fairness, the SEC is reviewing registration statements for 10 spot bitcoin ETFs simultaneously. This coordinated approach provides equal opportunity for different issuers to offer these products.
Bitcoin Uses Questioned
While neutral on the ETF approval, Gensler pointed out precious metals held in ETFs have real-world utility, whereas bitcoin is mostly speculative and used for illicit finance. The SEC’s experience overseeing commodities ETFs will help regulate bitcoin funds.
Risks Remain
The SEC approval allows listing of bitcoin ETFs but does not endorse bitcoin itself. Gensler advised investors to remain cautious about the many risks of bitcoin and crypto-linked investments.
