Finance and cryptocurrency sector key figures have been expressing concerns about the impact of the U.S. Securities and Exchange Commission‘s (SEC) on the efficiency of cryptocurrency-based spot exchange-traded funds (ETFs). In particular, U.S. finance attorney Scott Johnsson, venture capitalist Nic Carter, and the BitMEX exchange have shed light on the potential implications of the SEC’s in-kind creation/redemption regulations for cryptocurrencies.
SEC’s Regulatory Barriers Threaten ETF Efficiency
The excitement over the approval of a Spot Bitcoin ETF has recently boosted the confidence of market participants and global investors are anticipating significant institutional participation in the cryptocurrency market following the approval. Meanwhile, many market observers and experts expect the SEC to approve a spot Bitcoin ETF at the beginning of January 2024.
However, many market experts like Scott Johnsson and Nic Carter have voiced their concerns about the upcoming spot Bitcoin ETF, citing the SEC’s hawkish stance. Prominent finance attorney Scott Johnsson highlighted the critical issue surrounding the SEC’s reluctance to approve changes that allow in-kind creation or redemption for cryptocurrencies. He also underlined the SEC’s skepticism about compliance, noting that despite its authority, it leads to less investor protection. He pointed out that this regulatory posture results in a new but potentially less secure product, introducing new risks for investors.
Venture capitalist and leading figure in the crypto world, Nic Carter, agrees with Johnsson. From a practical standpoint, he said that the SEC’s attitude means that the efficiency of cryptocurrency ETFs will decrease as the share creation and redemption process becomes more costly. According to Johnsson, it is unclear whether this will lead to tracking errors or higher expense ratios, but the overall effect corresponds to an increase in costs.
BitMEX Issues Warning for Spot ETFs
BitMEX, a cryptocurrency exchange co-founded by prominent figure Arthur Hayes, made a notable statement expressing concerns about the impact of the SEC on the fundamental operation of cryptocurrency-based spot ETFs. BitMEX specifically outlined the traditional mechanism where authorized participants (APs) play a crucial role in maintaining ETF efficiency through in-kind creations and redemptions.
BitMEX warned that significant advantages would be lost, competition would be limited, and the ETF structure would become less effective if the SEC only preferred cash transactions.
While the cryptocurrency world grapples with certain regulatory nuances, all these concerns raised by legal experts, venture capitalists, and major cryptocurrency exchanges like BitMEX underscore the potential challenges ETFs may face. Investors and industry stakeholders are closely monitoring how these regulatory dynamics will shape the future of cryptocurrency investment and are asking questions about the SEC’s role in either promoting or hindering innovation.
