In the U.S., the SEC has a lot of sway on how assets get bought, sold, and held—that is, except cryptocurrency assets. Over the past 12 years, the commission has been trying to tap into a point of control for decentralized digital currency. Now, SEC chair Gary Gensler is trying to rope crypto in himself.
What might come of Gensler's efforts? A crypto ETF, for one. Here's what crypto enthusiasts can expect moving forward.
Fund managers have been trying—and failing—to land a crypto ETF on the stock market.
Startup and existing asset managers have been attempting to push their crypto ETFs through the SEC gates for years. In the past, the commission cited concerns about liquidity for an extremely volatile asset as its primary reason for denying the funds. The SEC also reported being worried about market manipulation within the funds, which are born from then-unfamiliar blockchain technology.
Currently, the SEC's arguments center more around what people do with those underlying assets. Gensler said on Aug. 3 that cryptocurrency is wrought with "fraud, scams, and abuse."
Is cryptocurrency really as black market like the SEC says it is?
When researching cryptocurrency's use for illicit activities over time, the results depend largely on your source. For example, the Crypto Council for Innovation (CCI) says that cryptocurrency's use in illicit activities has greatly diminished over time. The CCI is spearheaded by Jack Dorsey, who owns crypto-invested Square.
The SEC continues to target crypto fraud (and the IRS is right there along with them targeting back taxes on crypto capital gains to help fund President Biden's infrastructure bill). Governmental organizations and individuals (Gensler included) suggest that illegal activity under the umbrella of Bitcoin and other currencies continues.
Gary Gensler wants more regulation for crypto
When speaking to the Aspen Security Forum, Gensler—who taught a class at MIT Sloan on blockchain technology—said, "We just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West."
His words resonated, and his metaphor of an undeveloped region suggests that the SEC will continue to attempt to regulate cryptocurrency at a threshold similar to other securities that the commission covers, like stocks and bonds. First, the SEC will need congressional approval.
Could the first crypto ETF come under Gary Gensler's lead?
Cathie Wood's ARK Bitcoin ETF, the VanEck Bitcoin ETF, and the Galaxy Digital Bitcoin ETF are just a few of the funds that managers have attempted to push through in 2021. So far, none of them have crossed the finish line and landed on the market.
Gensler said that he looks forward to reviewing crypto ETFs in the future and is particularly open to those limited to the Chicago Mercantile Exchange (CME), which offers Bitcoin futures. As for funds with direct Bitcoin underlying assets, Gensler didn't have anything to say. If his latest announcement says anything, it's that Bitcoin futures may be first in line.
Currently, altcoins remain a risky game for the SEC, and any crypto ETFs to come are much more likely to have Bitcoin in the background.