According to former SEC attorney John Reed Stark, the current SEC, led by Chairman Gary Gensler, is facing significant regulatory concerns that make it unlikely for a Bitcoin spot ETF application to be approved. One of the major issues is the ability to prevent fraud and protect investors. Interestingly, Stark observed that the topic of crypto regulation has become a partisan divide within the SEC. This is a dramatic shift from the earlier bipartisan consensus against cryptocurrencies. Former SEC Chair Jay Clayton, who was appointed by a Republican, initiated a crypto crackdown and implemented sweeping regulatory actions against cryptocurrencies.
Stark believes that the outcome of the upcoming 2024 U.S. presidential election could have a significant impact on the regulatory landscape. If a Republican candidate is elected, he predicts a decrease in the SEC’s crypto-enforcement efforts. This potential reduction could create a more crypto-friendly environment, with the SEC being more open to approving a Bitcoin spot ETF. Additionally, other favorable regulatory actions regarding crypto may be more likely to occur. Stark points out that the SEC, as an independent federal agency, undergoes leadership changes following presidential elections. Hester Peirce, known as the “crypto-mom” for her support of cryptocurrencies, could become the acting Chair if a Republican is elected, potentially leading to a shift in the SEC’s stance on cryptocurrencies.
Stark also highlights a letter from Better Markets to the SEC, which raises several concerns about the proposed rule changes allowing the listing and trading of spot Bitcoin ETFs. One of the concerns is manipulation in the Bitcoin market, particularly “wash trading” that creates false volumes. Better Markets argues that the proposed surveillance-sharing agreements with platforms like Coinbase are insufficient to detect manipulation, as Coinbase represents only a small fraction of global Bitcoin trading. The organization also emphasizes the risk associated with concentrated ownership of Bitcoin, with a small number of miners controlling a significant portion of the mining capacity and a limited number of wallets owning a substantial amount of Bitcoins.
Factors Influencing the SEC’s Decisions
Stark asserts that the SEC’s decisions regarding Bitcoin ETFs and related regulatory issues are likely to be influenced by various factors. Internal politics within the SEC play a role, as different commissioners may have differing opinions on cryptocurrencies and their regulation. The broader political landscape, including the outcome of elections, can also shape the SEC’s approach to crypto. Ongoing concerns about market manipulation and investor protection continue to be significant factors as well. Given the current state of politics and the SEC’s regulatory environment, Stark does not believe that a Bitcoin spot ETF will be approved without significant changes to the regulatory framework.
The Future of Bitcoin Spot ETFs
The future of Bitcoin spot ETFs in the United States remains uncertain. The SEC’s regulatory concerns, the partisan divide within the commission, and the potential impact of future elections all contribute to the current roadblocks. While some believe that a more crypto-friendly environment may emerge with a change in leadership or regulatory landscape, others argue that the risks associated with market manipulation and investor protection continue to warrant caution. As the debate surrounding cryptocurrencies and their regulation evolves, only time will tell whether a Bitcoin spot ETF will eventually gain approval in the U.S. market.