Quick Take

SEC approves spot Bitcoin ETFs but underscores it does not endorse Bitcoin itself. The move follows legal battles, and the SEC’s focus remains on investor protection and compliance with securities laws. Chairman Gensler also emphasized the distinction between ETPs and the underlying digital asset’s speculative nature.

SEC Approves Spot Bitcoin ETP Shares While Maintaining a Neutral Stance on Bitcoin

The U.S. Securities and Exchange Commission (SEC) today approved the listing and trading of spot Bitcoin ETFs. However, it’s crucial to note that this decision, announced by SEC Chair Gary Gensler, does not constitute an endorsement of Bitcoin as a cryptocurrency.

Chair Gensler made it clear in his statement that, “While we approved the listing and trading of certain spot Bitcoin ETP shares today, we did not approve or endorse Bitcoin.” This statement underscores the SEC’s stance on the differentiation between allowing investment products tied to Bitcoin and endorsing the digital currency itself.

The SEC’s decision comes after a series of legal battles and regulatory hurdles surrounding the introduction of spot Bitcoin ETFs in the United States. Gensler emphasized the Commission’s commitment to acting within the boundaries of the law and respecting the interpretations provided by the courts.

From 2018 until March 2023, the SEC had rejected over 20 exchange rule filings related to spot Bitcoin ETPs, including one submitted by Grayscale, which aimed to convert its Bitcoin Trust into an ETP. The regulatory environment changed significantly when the U.S. Court of Appeals for the District of Columbia ruled that the SEC had failed to adequately justify its disapproval of Grayscale’s proposed ETP. As a result, the Grayscale Order was vacated, and the matter was remanded to the Commission.

In light of these legal developments, the SEC has chosen to approve the listing and trading of spot Bitcoin ETP shares. Gensler reiterated that the Commission evaluates rule filings based on their alignment with the Exchange Act and relevant regulations, with a primary focus on investor protection and the public interest. The SEC maintains a neutral position when it comes to specific companies, investments, or assets within an ETP, as long as they comply with securities laws and regulations.

It is essential to emphasize that the SEC’s decision is limited to ETFs holding Bitcoin and does not signal the Commission’s willingness to endorse listing standards for crypto asset securities. Gensler also restated his position that the vast majority of crypto assets are considered investment contracts and are thus subject to federal securities laws.

Despite the inherent volatility and speculative nature of Bitcoin, Gensler pointed out that investors can already access Bitcoin through various avenues, including brokerage houses, mutual funds, national securities exchanges, peer-to-peer payment apps, and the Grayscale Bitcoin Trust. However, the SEC’s approval introduces specific safeguards for investors.

Sponsors of Bitcoin ETPs will be required to provide comprehensive and transparent disclosure about their products through public registration statements and periodic filings. These disclosures aim to inform investors about the products’ features, but the approval does not constitute an endorsement of specific ETP arrangements, such as custody solutions.

Furthermore, these ETPs will be listed and traded on registered national securities exchanges, subject to rules designed to prevent fraud and manipulation. The SEC will closely monitor these exchanges to ensure compliance and investigate any instances of fraud or manipulation, including those involving social media platforms. These regulated exchanges also have mechanisms to address conflicts of interest and protect investor interests.

Existing regulations and standards will continue to apply to the purchase and sale of approved ETPs, including Regulation Best Interest for broker-dealers recommending ETPs to retail investors and fiduciary duty under the Investment Advisers Act for investment advisers. However, it is essential to reiterate that today’s approval does not extend to endorsing crypto trading platforms, which often operate outside the boundaries of federal securities laws and may present conflicts of interest.

In addition to the approval of certain spot Bitcoin ETPs, the Commission is concurrently reviewing registration statements for ten such ETPs. This move aims to promote fairness, competition, and a level playing field for issuers, ultimately benefiting investors and the broader market.

Gensler concluded by highlighting the distinction between precious metals ETPs, which have both industrial and consumer uses, and Bitcoin, which he described as primarily a speculative asset with potential links to illicit activities such as ransomware, money laundering, sanctions evasion, and terrorist financing. His message to investors was clear: exercise caution and be mindful of the multifaceted risks associated with Bitcoin and crypto-related products.

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