SEC Delays ETF Again, Despite Warning from Congress
As House Lawmakers Urge SEC Chair to approve Bitcoin ETF “immediately”, Commission punts decision yet again. Rumors of government shutdown stoke confusion.
Amidst a chaotic political environment in Washington, the SEC has shocked the Bitcoin community by postponing a decision on the Bitcoin ETF, even after support from House lawmakers.
The final week in September 2023 has been a dramatic one for cryptocurrency advocates, claims Reuters, as various groups in this economic sphere have attempted to lobby for well-defined and friendly regulation. A grassroots campaign led by Coinbase organized a “Stand with Crypto” Day mere days after the majority of the US Bitcoin mining industry affiliated into a political action group. However, the most pressing interaction between the Bitcoin community and federal government regulators is clearly visible in the ongoing fight for a Bitcoin ETF.
A Bitcoin spot exchange traded fund, or ETF, would revolutionize the way that private individuals and institutions interact with the world of Bitcoin. Essentially, a spot ETF would be a financial instrument whose value is directly correlated with the value of Bitcoin itself. Compared to actually buying this asset, ETFs are not only far more accessible but also well-entrenched in the existing financial markets. The Commodity Futures Trading Commission (CFTC), a regulator considered less of a stickler than the SEC, has already approved the Bitcoin futures ETF. Not correlated to Bitcoin’s actual price, its value is instead correlated through varied means of tracking Bitcoin’s success in a more general sense. Since its launch, this contract has been wildly popular.
The futures ETF has been a monumental accomplishment in its own right, but the spot ETF would genuinely revolutionize the digital financial world. If this new instrument were to be approved, everything from pensions to mutual funds could suddenly find itself counting on the continued success of Bitcoin. The community and its enthusiasts would be as free as ever to acquire, sell and spend their bitcoins, but the investment of untold billions into this ETF could provide a real safeguard against drops in Bitcoin’s value.
The main obstacle to this game-changing development is the Securities and Exchange Commission (SEC), a federal regulatory body that has to give the final approval for a new product like this to be declared legal. Although many different firms have submitted proposals over the years, the Commission’s strategy for much of 2023 has been to delay these attempts, pushing the deadlines ahead by months at a time. This strategy has brought on widespread criticism, such as the episode in late August where the U.S. Court of Appeals for the D.C. Circuit rejected the SEC’s reason to delay.
Left without the same pretense of questioning the market for such a product, the SEC had to find a new justification to continue its fight against the Bitcoin ETF, a fight which one court now calls “arbitrary and capricious”. Adding substantial heat to the fire were four Congressmen, two Republicans and two Democrats, who signed an open letter to the SEC on September 26. Citing the August court ruling, these Congressmen told SEC Chairman Gary Gensler that “we urge you to approve the listing of spot bitcoin [ETFs] immediately.”
Unbelievably, this pressure has not been enough to prevent the SEC from again moving to delay on September 28. Citing relatively vague threats to “market manipulations” and “national security”, the SEC’s letter also makes the interesting step of inviting interested persons to “submit written data, views, and arguments regarding whether the proposed rule change should be approved or disapproved,” and including several recommended formats for bitcoiners to write to the SEC.
Is this move a sign of weakness? Of arrogance? Will the courts swat down their efforts to continue delaying again? The persistent rumor of a government shutdown on October 1, if the legislature doesn’t come to an agreement to fund federal agencies, has also come into play. As Gensler warned that the SEC would have only a “skeletal” staff in the event of a shutdown, the SEC’s new strategy against the Bitcoin ETF could simply be to create an ambiguous situation that holds until the end of the month. If a shutdown occurs, an indefinite period of furlough would give ETF opponents extra time to come up with a sturdier basis to reject the proposals.
The community has already reacted to this news. Valkyrie, one of the leading firms proposing a spot Bitcoin ETF, has pushed forward a plan to offer a futures ETF on Ether. VanEck also claimed that their “fund will invest in standardized, cash-settled ETH futures contracts traded on commodity exchanges registered with the Commodity Futures Trading Commission (CFTC)”. Essentially, the Bitcoin futures ETF has already been considered under the jurisdiction of the CFTC, and this less stringent regulator has approved these contracts. This rapid approval for a different product by a different regulator surely shows a commitment from these firms to pursue new ETF products.
The pressure is building as the Bitcoin spot ETF is getting closer and closer than ever. Although the SEC’s reticence has put another hurdle between the community and this goal, eventual success seems more inevitable than ever. Even if the government does shut down, the last shutdown from 2018-2019 lasted only 35 days. An obstacle that would be life-changing for the individual is barely a speed bump for a sustained legal effort from many different firms. The Bitcoin ETF is coming, and a world of possibilities is coming along with it.
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