Bitcoin ETFs Face Hurdles As SEC Chair Sounds Alarm On Fraud And Manipulation

July 28, 2023: In a recent televised interview with Bloomberg, Securities and Exchange Commission (SEC) Chairman Gary Gensler raised severe concerns about the alleged prevalence of fraud and manipulation in the cryptocurrency market. The interview coincided with spot Bitcoin (BTC) Exchange-Traded Funds (ETF) applications filed by investment behemoth BlackRock and other giants, primarily relying on surveillance sharing agreements with Coinbase.

However, the SEC has not approved any spot Bitcoin ETFs, citing apprehensions over market manipulation and investor protection. Gensler’s interview emphasized the potential conflicts of interest and investor vulnerability posed by combining various market functions on crypto trading platforms, a practice prohibited in traditional financial exchanges.

While some crypto tokens may fall under securities laws, many trading platforms may not comply with the long-established safeguards against fraud and manipulation. Gensler asserted, “There’s a lot of noncompliance in this field. The platforms themselves, where trading is occurring of various crypto tokens, are currently not necessarily compliant with those time-tested protections against fraud and manipulation.”

The SEC has already taken action against several companies in the crypto industry, including major players like Binance and Coinbase, for violating securities laws and fraudulent practices. Gensler’s statements indicate that the SEC is committed to taking a stringent approach in tackling noncompliance within the crypto market.

The surge of spot Bitcoin ETF applications, particularly those backed by BlackRock and tied to Coinbase’s surveillance sharing agreements, might face regulatory opposition due to Gensler’s expressed concerns. However, he clarified that the final decision on these applications would come after a thorough review by the full five-member commission.

Gensler’s remarks underscore the SEC’s cautious stance towards approving new crypto products, particularly in light of the persisting worries about fraud and misconduct in the nascent crypto industry.

Moreover, Gensler’s scepticism mirrors a broader sentiment shared among regulators and policymakers, who have struggled to keep up with the rapid pace of innovation in the crypto space. The evolving nature of the industry makes it challenging to establish robust regulatory frameworks and investor protections.

While the SEC has yet to announce its verdict on the recent wave of ETF filings, Gensler’s cautious approach indicates that the commission may take a vigilant stance regarding greenlighting such products.

The largest cryptocurrency, BTC, is trading at $29,170, experiencing a minor decrease of 0.8% over the past 24 hours. This market update reflects the cautious atmosphere in the crypto market, with regulatory scrutiny continuing to impact investor sentiment and market dynamics.