Following the SEC’s approval of the Bitcoin ETF, critics and proponents clashed over the decision. Adam Cochran emphasized that, contrary to Senator Warren’s assertion, the SEC does not set or decide the law; instead, it serves as a rulemaking organization offering guidance and interpretations. The binding interpretation of the law, as Cochran pointed out, rests with the judiciary. In her words, “If the SEC is going to let crypto burrow even deeper into our financial system, then it’s more urgent than ever that crypto follow basic anti-money laundering rules.”
In response, proponents of cryptocurrencies argued that existing robust laws are already in place to prevent money laundering within the crypto space. US agencies such as FinCEN, SEC, and CFTC actively enforce anti-money laundering [AML] compliance, sanctions adherence, and transaction monitoring. Additionally, individual states, including New York with its BitLicense, contribute significantly to AML efforts. They emphasize that the approval of a Bitcoin ETF aligns with existing legal frameworks.
Users also pointed to a significant legal precedent. The DC Circuit Court of Appeals overturned the SEC’s rejection of Grayscale’s attempt to convert its trust into an exchange-traded fund. This decision, made by a panel of three judges, underscored the court’s belief in the legality of approving a Bitcoin ETF. In a notable ruling in August 2023, the court found the agency’s rejection of Grayscale’s proposal to be “arbitrary and capricious,” criticizing the lack of a clear explanation for the denial.
SEC’s Reversals & Rulings
Grayscale had argued that converting to an ETF would benefit investors by allowing easy creation and redemption of shares, a feature not available in the current closed-end structure. The decision was hailed by crypto advocates as a pivotal moment and a challenge to the SEC’s stance under Chair Gary Gensler.
Despite these developments, the regulator has been active in enforcing regulations within the crypto space, with Ripple being a prominent target. The legal proceedings involving Ripple and its XRP cryptocurrency gained significant attention, particularly after a judge ruled that XRP qualified as a security only when sold to institutional investors. Many in the crypto community believe that these legal precedents have paved the way for broader approval of spot Bitcoin in traditional financial markets.