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SEC Greenlights Bitcoin ETFs. Is Ethereum Next?

Investing News | Jan 11, 2024

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The U.S. Securities and Exchange Commission (SEC) has approved the launch of various spot Bitcoin Exchange-Traded Funds (ETFs) applications

As widely reported, the SEC has approved applications for 11 issuers, including major players like BlackRock and Grayscale. The approval of spot Bitcoin ETFs, a process that began in 2013 which tracks the current price of Bitcoin, is expected to open new flows of investment from wealth managers and everyday traders.

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Previously, the SEC had rejected applications for spot Bitcoin ETFs, citing market immaturity and potential manipulation risks. However, the recent approval indicates a change in perception, acknowledging the growing maturity and stability of the crypto market.  A watershed moment for crypto.

SEC Chair, Gary Gensler, Releases Statement

Gary Gensler, the Chair of the U.S. Securities and Exchange Commission (SEC), released a statement following the approval of spot Bitcoin ETFs. In his statement, Gensler emphasized that the SEC's decision is based on the law and court interpretations. He noted that the SEC had previously disapproved over 20 filings for spot Bitcoin ETPs, but the situation changed following a court ruling that the SEC failed to adequately explain its reasoning in disapproving Grayscale's proposed ETP.

Gensler stated that the approval of these spot Bitcoin ETP shares is the most sustainable path forward, given the circumstances and discussions in the approval order. He clarified that the SEC evaluates rule filings based on their consistency with the Exchange Act and regulations, focusing on investor and public interest protection. The approval does not signal the SEC's willingness to approve listing standards for crypto asset securities or its views on the status of other crypto assets under federal securities laws.

The statement also highlighted that investors already have various ways to buy, sell, or gain exposure to Bitcoin. The approved Bitcoin ETPs will require full, fair, and truthful disclosure, and they will be listed and traded on registered national securities exchanges. These exchanges are required to have rules designed to prevent fraud and manipulation, which the SEC will monitor closely.

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Gensler noted that existing rules and standards of conduct apply to the purchase and sale of the approved ETPs, including Regulation Best Interest for broker-dealers and a fiduciary duty under the Investment Advisers Act for investment advisers. He also mentioned that the SEC staff is reviewing registration statements for 10 spot Bitcoin ETPs to promote fairness and competition.

Gensler stated that while the SEC approved the listing and trading of certain spot Bitcoin ETP shares, it did not endorse Bitcoin itself. He cautioned investors about the risks associated with Bitcoin and products whose value is tied to crypto, noting Bitcoin's speculative nature and use in illicit activities.

Gensler Interview

Although Gensler acknowledges some innovative aspects of blockchain as an "accounting system," he pointed out an "irony" in the idea of sanctioning an ETF for what is purported to be a "decentralized" system.

“Think about the irony of those who would say this week is historic,” he said. “Now you can buy [Bitcoin] through this thing called an exchange-traded product that’s, well, centralized.”

Outlook

Following the SEC's approval of Bitcoin ETFs, the price of Ether, the cryptocurrency linked to Ethereum, spiked to its highest level since May 2022. This surge is driven by investor optimism that an ETF for Ether might also be approved.

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However, SEC Chair Gary Gensler has cautioned that the approval of Bitcoin ETFs does not necessarily indicate a similar readiness for other crypto asset securities. Commentators are divided over whether an Ether ETF will be approved in 2024, with some expressing skepticism due to the ongoing debate over whether cryptocurrencies like Ethereum are classified as securities or commodities.  As the market responds to this development, it remains to be seen how other cryptocurrencies like Ether will be impacted and whether they too will see similar ETF approvals in the future.


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