The hot demand for investment securities linked to bitcoin does not appear to be moving the U.S. Securities and Exchange Commission’s stance toward other products more directly linked to the cryptocurrency.
SEC Chair Gary Gensler said he still has concerns about investor protection in the $2.5 trillion market for crypto assets.
“Investors aren’t protected the way they are, whether they go into the stock or bonds markets that we’ve overseen so long,” said Gensler at Yahoo Finance's All Markets Summit Monday. “Without that, I think it really is, as I’ve said to others, a bit of the Wild West.”
Last week, investors were able to invest in the first-ever exchange-traded funds (ETFs) products linked to bitcoin futures contracts. Investors swarmed the new offering; the debut of the ProShares Bitcoin Strategy ETF (BITO) was the second largest ever for an ETF.
As bitcoin itself surged to record highs, optimism started to build over the prospects of the SEC green-lighting a bitcoin spot ETF. Whereas a bitcoin futures ETF is pinned to options contracts traded on the Chicago Mercantile Exchange, there is no ETF yet available that’s linked to bitcoin itself (referred to as a “spot” or “physical” ETF).
Gensler drew this distinction, noting that bitcoin futures themselves are regulated by the Commodity Futures Trading Commission.
“It’s a matter of bringing as much of this space within the investor protection remit,” Gensler told Yahoo Finance.
Investors may wait ‘awhile’ for a spot product
A few days after the ProShares debut, digital asset manager Valkyrie launched its own Bitcoin Strategy ETF (BTF). Valkyrie CEO Leah Wald told Yahoo Finance that with regulators giving a thumbs up to bitcoin futures ETFs, she believed demand was robust enough to bring two or three bitcoin futures products to market.
During the week, Grayscale Investments also submitted a filing to convert its bitcoin trust (GBTC) to a bitcoin spot ETF. The move fueled hope that the regulatory lane would soon be opening to spot offerings.
But Nate Geraci, president of The ETF Store, said Gensler’s comments show the SEC is still a ways away from approving such an offering.
“The SEC doesn't believe they can properly surveil crypto exchanges and combat potential fraud and manipulation,” Geraci told Yahoo Finance. “While the futures-based bitcoin ETFs are a positive first step, it appears that investors might be waiting awhile on a spot product.”
Asked if the hot debut of futures products has changed the SEC’s attitude toward a spot product, Gensler declined to offer thoughts on any specific applications.
“These markets, largely around the world, 24 hours a day, 7 days a week, don’t have the similar protections against fraud and manipulation and front running and other abuses,” said Gensler about the broad crypto space.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.