The Securities and Exchange Commission — forced by courts to permit Bitcoin ETFs — is abusing recent regulatory rules to discourage Bitcoin ETF investments.
The Bitcoin spot ETF is the first investment product that will allow investors to get direct exposure to Bitcoin’s (BTC) price through traditional and regulated investment products. It’s the first investment product linked to Bitcoin that the baby boomer generation is familiar with and can widely feel comfortable investing in.
The approval came after a lengthy lawsuit led the D.C. Circuit Court to rule that the SEC had been hypocritical in approving Bitcoin futures ETFs but not spot ETFs. SEC Chairman Gary Gensler made clear his distaste in having to vote for the ETFs in a statement following the vote. (Most ETF approvals, even those that have consistently lost investor funds since approval, have not been accompanied by a statement from the chairman, much less one that recommended against investing in it).
This was the first time an SEC chairman ever approved an ETF, and by way of the approval made a speech advising people against buying the ETF. That’s inconsistent with the SEC’s disclosure-centric mission.
Has the Bitcoin community won? Did we really beat Gary? Not so fast. Permit a Star Wars analogy. We are in the second movie, Empire Strikes Back. Hope for the Bitcoin revolution in money and as a store of value is not lost, but Gensler is building a second Death Star as we speak.
Before investment advisers and brokers can recommend to their clients that they should buy a piece of the Bitcoin spot ETF, they will need to comply with new rules adopted by the SEC in 2019, called Regulation Best Interest (Reg BI).
Reg BI is a Kafka-esque regulation, stretching to hundreds of pages, adopted by the SEC whose top-line points are that advisers should conform to a duty of care and that that also includes particular disclosure requirements.
A duty of care sounds nice, but it is a nebulous idea that is entirely undefined in Reg Bi in this case. It therefore lends itself to investors suing their advisors based on hindsight bias when their investment doesn’t grow as they expect after the fact.
If you were a uniquely politically minded SEC chairman, motivated to cater to the single anti-Bitcoin Senator Elizabeth Warren who single-handedly forced President Biden to nominate you in exchange for her decision to withdraw from the democratic presidential primary, you might be tempted to abuse the subjective judgments left open by Reg Bi to openly discourage those investment advisers and brokers governed by Reg Bi from advising their clients to invest in the new Bitcoin spot ETFs.
That description is not an actual hypothetical. It’s more of a prediction. It will happen. Indeed, it has already begun to happen. Vanguard has openly told clients that they are not allowed to invest in the Bitcoin ETFs products listed on Fidelity and nearly every other brokerage platform. This is because they are betting that the Reg BI uncertainty will be abused to openly discourage investment in this platform that the SEC was forced by the federal courts to open up.
This is where Gensler will strike back, in the form of examination of investment advisers and brokers by SEC examiners, and threats of SEC enforcement staff. This is the weapon of the bureaucracy who adheres to an anti-Bitcoin ethos flowing from Gensler’s Senate patron in Senator Elizabeth Warren, who backed him for his role as SEC chairman.
This short term tactic by an SEC chairman whose term is over will not matter much to native Bitcoiners, who find the idea of an ETF wrapper around Bitcoin silly anyway. It will merely mean that baby boomers will be delayed in their efforts to diversify their portfolios courtesy of Gary Gensler.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.