Why is the SEC Rejecting Grayscale’s Spot Bitcoin ETF? – Forbes
The US Securities and Exchange Commission (SEC) on Wednesday rejected Grayscale Investments’ proposal to convert its Bitcoin BTC futures ETF to a spot ETF. This caused panic in the market and caused a 5% drop in the price of bitcoin. Investors were expecting a positive response from the SEC.
UNITED STATES – NOVEMBER 18: Commodity Futures Trading Commission Chairman Gary Gensler testifies… [+] During a hearing of the Senate Agriculture, Nutrition and Forestry Committee on Reform of United States Financial Markets Rules on Wednesday, November 18, 2009. (Photo by Bill Clark / Roll Call / Getty Images)
CQ-Roll Call, Inc. via Getty Images
To put the matter into perspective, it is imperative to understand the SEC chairman’s view on bitcoin. Earlier in the week, on Monday, during an interview with Jim Cramer, SEC Chairman Gary Gensler reiterated that bitcoin is the only digital asset he classified as a commodity.
This leads to the understanding that he expects the Commodity and Futures Trading Commission (CFTC) to regulate bitcoin and put in place proper bitcoin structures before pushing for regulation of spot bitcoin ETFs. In the official disapproval, the SEC cited the failure of Grayscale Investments to respond to concerns about market manipulation and concluded that the proposal lacked a proper way to protect investors.
Bitcoin regulation in the United States may be overseen by a number of federal and state agencies. This includes the SEC, the FED, the CFTC and the Treasury, among others. Bitcoin is a currency, a commodity and a technological innovation that serves as the underlying asset for securities such as bitcoin futures ETFs and cryptocurrency exchanges. This means that multiple regulatory agencies must collaborate to establish a proper structure.
Gary Gensler told the Financial Times last week that he was in talks with the CFTC about transparency and investor protection in digital asset trading. According to Avik Roy, president of the Foundation for Research on Equal Opportunity, most crypto coins and tokens are securities, while others can be classified as subsidiary assets, and bitcoin and ether (ETH) have commodity characteristics.
During an interview with Peter McCormack on Bitcoin Did Show, Avic Roy stated that bitcoin fails the Howe test and is therefore a commodity. As a result, it is subject to CFTC oversight. This may explain why the SEC would not regulate the spot bitcoin ETF as such regulation would require cooperation with the CFTC, which has not yet happened.
When you look at what bitcoin is and how it is used around the world, you realize how difficult it is for regulatory bodies to regulate it. For example, the SEC may consider bitcoin a foreign currency because of its official status in El Salvador and the Central African Republic. What is the regulatory body in the United States dealing with foreign currencies?
Regulation of spot bitcoin ETFs may have been contingent on the passage of the Responsible Financial Innovation Act (RFIA) by Wyoming Senator Cynthia Lumis, which seeks to clarify what digital currencies are (under US law), how they can be classified. (goods, ancillary property, and securities), and how tax laws apply to them. In addition, the bill aims to establish bodies for regulating specific digital assets as well as how anti-money laundering regulations can be enforced.
If bitcoin is regulated as a commodity, what will happen to the other layers being built on top of the bitcoin blockchain, such as the Lightning Network and the Liquid Network? As a global network, I think the situation requires more than just US agencies, but rather a global network of agencies to accelerate bitcoin adoption. This will ensure that each participating state can take full advantage of Satoshi’s innovation.
Disclosure: I own bitcoin and other cryptocurrencies.
