SEC ‘Carefully Considering’ Spot Bitcoin ETF in Response to Congressman

In a letter sent to Minnesota Congressman Tom Emmer on Feb. 15, the SEC laid out its reasoning for repeated rejections of a spot Bitcoin (BTC) ETF.

The pro-crypto Republican sent a letter to the financial regulator in November last year to SEC chair Gary Gensler requesting clarity on its decision-making processes for crypto-based investment products.

In a Tweet on Feb. 17, Tom Emmer posted the response that he finally received.

We received a response from SEC Chair Gensler to our 11/3/21 letter regarding BTC spot ETFs. This issue remains a priority for us and we will continue to oversee the SEC in its mission to maintain fair and orderly markets and facilitate capital formation. pic.twitter.com/WbgSDj7o0T

— Tom Emmer (@RepTomEmmer) February 17, 2022

Careful Consideration

The SEC pointed out the obvious first in that Bitcoin futures and spot ETPs (exchange-traded products) are different products with different underlying holdings. A handful of futures-based ETFs were approved last year, and these are backed by Bitcoin futures contracts on the Chicago Mercantile Exchange (CME). A spot-based fund, which the crypto industry is still eagerly awaiting, would be backed by the physical asset itself.

It stated that the Commission views each product under its own different standards and must apply the standards of the Exchange Act. “In particular, the Commission must consider if the Bitcoin spot ETP proposal is designed to prevent fraudulent and manipulative acts and practices,” it added.

However, CoinRoutes CEO Dave Weisberger pointed out that the price of futures and spot are “99.99% correlated” so if one was manipulated the other would follow and could even exaggerate moves on futures markets.

Gensler, who penned the letter, claims to be “technology neutral” but there was a ray of light at the end of it:

“As we continue to consider the proposals to list and trade these products, however, careful consideration will be given to all of the concerns you raise.”

The most highly anticipated spot Bitcoin fund is the conversion of Grayscale’s Bitcoin Trust into an ETF. This is the world’s largest institutional Bitcoin fund which is worth around $27 billion.

This week, Grayscale’s Chief Legal Officer, Craig Salm, stated that “our investors in the market really want this type of ETF to be approved,”

In December, Grayscale wrote to the SEC suggesting that there could be legal implications for the refusal to allow a spot ETF.

Uncle Sam Falling Behind

The constant procrastination and reluctance to approve such products has left the U.S. falling behind other countries and regions such as the European Union, and Canada, which have already approved such investment products.

Earlier this week, Bloomberg senior ETF analyst Eric Balchunas took a look through some of the comments on the SEC’s proposed rule change allowing the Grayscale conversion, observing that 95% are in favor of the proposal.