The U.S. Securities and Exchange Commission (SEC) is facing criticism from influential figures in the finance and crypto sectors over its approach to crypto exchange-traded funds (ETFs). The SEC has not yet approved any spot Bitcoin ETFs, which would track the price of the underlying asset, despite the growing demand and optimism from the market.
According to U.S. financial lawyer Scott Johnsson, this would reduce investor protection and introduce new risks, as the underlying assets would not fully back the ETFs. He said that the SEC’s position contradicts its mandate to protect investors and promote fair markets.
Venture capitalist Nic Carter, a prominent figure in the crypto space, also expressed his concern over the SEC’s stance. He argued that using cash transactions would decrease the efficiency of crypto ETFs, as the creation and redemption of shares would become more costly. This could lead to tracking errors or higher expense ratios, resulting in a higher cost for investors.
BitMEX Challenges SEC’s Cash-Only ETFs Stance
Another voice of conflict came from BitMEX, a leading crypto exchange co-founded by Arthur Hayes. BitMEX pointed out that the conventional mechanism of exchange-traded funds relies on in-kind creations and redemptions, which allow APs to arbitrage any price discrepancies and maintain ETF efficiency.
However, if the SEC insists on using cash transactions only, BitMEX warned that the crypto ETFs would lose the essential advantages of the ETF structure, such as liquidity, transparency, and competition. BitMEX also questioned the SEC’s rationale for its decision, as it seems to ignore the benefits of in-kind transactions for investors and the crypto market.
The SEC has yet to approve any spot Bitcoin ETFs, which the crypto community and global investors have eagerly awaited. The SEC has delayed its decision on several applications from various firms, such as BlackRock, Grayscale, Bitwise, WisdomTree, Invesco, Galaxy, Fidelity, ARK Invest, Valkyrie, Franklin, Hashdex, Global X ETFs, and Pando Asset.
Many experts predict that the SEC could approve a spot Bitcoin ETF as early as January 2024, following the approval of several Bitcoin futures ETFs in October 2023. However, the SEC has raised doubts and concerns among industry experts, who question the SEC’s impact on the crypto market and investor protection.
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