In a reversal of a policy that has spanned two administrations, on January 10, 2024, the SEC approved applications for 11 Bitcoin spot exchange traded funds, or ETFs. The SEC approved the order by a 3-2 vote, with Chair Gensler forming a majority with the two Republican commissioners, and the two Democratic commissioners voting against the action.
For nearly five years, the SEC had methodically rejected numerous Bitcoin ETF applications. One Bitcoin ETF sponsor challenged the SEC’s denial of its application in court, and the DC Circuit Court of Appeals found that the SEC acted arbitrarily and capriciously in denying its application, noting in particular that the agency had previously approved Bitcoin futures ETFs. The DC Circuit decision effectively sent the ball back to the SEC’s court to either approve the application or find alternate grounds to disapprove it again.
With the January 10 order, the SEC conceded defeat. The SEC’s omnibus order approving 11 separate applications indicates that the listing exchanges’ surveillance-sharing agreements with the Chicago Mercantile Exchange could reasonably detect fraud or market manipulation for the purpose of the proposed products. Accordingly, the order provides that “in contrast to previous proposals, based on the record before the Commission and the improved quality of the correlation analysis in the record, including the Commission’s own analysis, the Commission is able to conclude that fraud or manipulation that impacts prices in spot bitcoin markets would likely similarly impact CME bitcoin futures prices.”
Each of Commissioners Peirce and Uyeda issued statements in support of the SEC action. But in an odd turn of events, and notwithstanding the 3-2 vote to approve the applications, a majority of the commissioners continued to express skepticism for Bitcoin. Commissioner Crenshaw warned that the action “put us on a wayward path that could further sacrifice investor protection.” Commissioner Lizarraga has not yet issued a public statement but voted against granting the applications. Chair Gensler went so far as to declare that:
[B]itcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing.
While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.
Although the SEC order is a bright spot for sponsors of Bitcoin spot ETFs, the SEC continues to wage an active war against the cryptocurrency industry. We expect 2024 to continue to be a difficult year for the digital asset industry before the SEC.