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Securities and Exchange Commission Chair Gary Gensler’s statement on why the agency has approved the listing and trading of a group of spot bitcoin ETFs indicates that he is still hostile to the cryptocurrency in general.
Gensler was faced with the difficult task of explaining why the SEC has reversed its position on bitcoin ETFs. He said that circumstances “have changed.”
They changed because the SEC lost a key court case last August: The U.S. Court of Appeals for the D.C. Circuit held that the commission failed to adequately explain its reasoning when it turned down Grayscale’s proposed bitcoin ETF.
Gensler was forced to give in, but not on all fronts.
For starters, he is engaged in several ongoing legal battles with the crypto community. In large part, the conflicts are based on his claim that most crypto assets are securities that come under the purview of the SEC.
In his statement, Gensler gave no indication he was changing his approach on this topic:
“Nor does the approval signal anything about the Commission’s views as to the status of other crypto assets under the federal securities laws or about the current state of non-compliance of certain crypto asset market participants with the federal securities laws. As I’ve said in the past, and without prejudging any one crypto asset, the vast majority of crypto assets are investment contracts and thus subject to the federal securities laws.”
Will bitcoin ETFs make Wall Street — wirehouses and financial advisors — more willing to recommend the cryptocurrency to clients and allow it to trade on their platforms?
Possibly, but Gensler made it clear that broker-dealers will have to adhere to existing rules:
“Further, existing rules and standards of conduct will apply to the purchase and sale of the approved [exchange traded products]. This includes, for example, Regulation Best Interest when broker-dealers recommend ETPs to retail investors, as well as a fiduciary duty under the Investment Advisers Act for investment advisers.”
Regulation Best Interest requires broker-dealers to act in the best interest of their retail customers when making investment recommendations. These recommendations must be “suitable” for the client.
That is a potential investment minefield for investment advisors, and it’s likely to keep many advisors away from recommending bitcoin for some time.
Finally, Gensler couldn’t help taking a parting shot at bitcoin in general:
“Though we’re merit neutral, I’d note that the underlying assets in the metals ETPs have consumer and industrial uses, while in contrast bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing. While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin.”