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A pathway to Bitcoin exchange-traded funds is looking more hopeful after Securities and Exchange Commission Chairman Gary Gensler openly talked about his vision on crypto market regulations.
In a speech at the Aspen Security Forum on Tuesday, Gensler said that crypto ETFs that comply with the SEC’s strict laws on mutual funds and other federal securities laws could provide investors significant protections. “Given these important protections, I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded Bitcoin futures,” said Gensler.
“What’s really exciting is the change in posture generally,” says Dave LaValle, the newly appointed global head of ETFs at Grayscale Investments. “If you take a few steps back, the conversations for a long time have been if there was going to be the regulatory clearance for a Bitcoin ETF, now it’s frankly shifted to when.”
Grayscale is the manager of
Grayscale Bitcoin Trust
(GBTC), a closed-end fund that is the world’s largest publicly traded Bitcoin fund, and many other investment products that offer easy access to digital currencies. LaValle’s position was newly created, the firm noted in a press release, and “a direct extension of the firm’s commitment to converting its entire family of investment products into ETFs.”
LaValle, a veteran in the ETF space, is Grayscale’s latest hire as it expands its senior leadership and team size. The firm recently named Deborah Bussière its first chief marketing officer. Last year, Grayscale doubled its head count, and it expects to continue growing this year.
Grayscale’s expansion is a reflection of investors’ rising demand for crypto-related products that could save them the time and energy of buying, storing, and safekeeping digital currencies themselves.
Currently, U.S. investors can directly own Bitcoin through closed-end funds like the Grayscale trust, or mutual funds that invest in Bitcoin futures. But the former cannot freely create new shares to accommodate investors’ demand, and the latter aren’t openly traded on security exchanges.
An ETF—often called the “holy grail” to take crypto assets mainstream—would be able to do both. At least half a dozen asset managers, including Fidelity, have filed applications with the SEC to launch a Bitcoin ETF, but none have been approved so far. The regulatory agency has raised concerns over lack of transparency and potential for manipulation in the Bitcoin market.
Grayscale has announced its intention to convert the $25 billion Bitcoin Trust into an ETF if regulators allow, but it hasn’t officially filed the paperwork.
There have been some debates about whether cryptocurrencies should be considered securities or commodities. The classification could make a big difference for the regulation of future crypto ETFs.
While most security-holding ETFs are registered under the 1940 Investment Company Act, which regulates mutual funds, ETFs that track commodities or currencies aren’t required to register under the same law. They are therefore much less scrutinized.
U.S. officials have classified Bitcoin as a commodity. But Gensler said in his Tuesday speech that many digital tokens are essentially investment contracts offered and sold as securities, but without the required disclosures or market oversight. “This leaves prices open to manipulation. This leaves investors vulnerable,” he said.
Gensler noted that the agency will step up its regulation on the cryptocurrency markets, calling the asset class “rife with fraud, scams, and abuse in certain applications.” In the Tuesday speech, he signaled increasing scrutiny over a few sections of the crypto business, including trading exchanges, lending platforms, and so-called stablecoins.
Write to Evie Liu at evie.liu@barrons.com
