Crypto Experts Express Concerns Over SEC’s Impact On ETFs

SEC Regulations Spark Concerns Among Crypto Experts

Several prominent voices in finance and cryptocurrency have raised concerns about the potential consequences of the US Securities and Exchange Commission’s (SEC) regulations on cryptocurrency exchange-traded funds (ETFs). The SEC’s stringent rules, particularly mandating authorized participants (APs) to maintain in-cash creations and redemptions instead of the traditional in-kind redemptions, have triggered worries within the crypto community.

Renowned figures have shared their insights on the possible implications of the SEC’s regulations on the creation and redemption process for digital assets. Such renowned figures include such as venture capitalist Nic Carter, U.S. financial lawyer Scott Johnsson, and BitMEX Exchange co-founder, Arthur Hayes.

Nevertheless, the anticipation surrounding the approval of a Bitcoin Spot ETF has significantly boosted market confidence. Many industry experts forecast that the SEC will greenlight a Bitcoin Spot ETF next month.

Experts’ Concerns And SEC’s Regulatory Approach

Scott Johnsson specifically highlighted the SEC’s reluctance to approve amendments allowing in-kind creation or redemption of digital assets. He underscored the regulator’s skepticism regarding compliance, raising concerns about diminished investor protection even though that was the agency claimed to be its primary objective.

Johnsson warned that this regulatory approach might introduce a product that would amplify investor risks. Venture capitalist Nic Carter echoed a similar sentiment, expressing apprehension about decreased efficiency in crypto ETFs due to the SEC’s stance.

He further predicted that the creation and redemption of shares could become more expensive. These rising costs could lead to tracking errors or higher expense ratios, impacting overall efficiency.

Prominent crypto exchange, BitMEX co-founder Arthur Hayes voiced worries about the SEC’s influence on the fundamental operations of crypto ETFs. Hayes warns about a decline in the effectiveness of the ETF structure based on the SEC’s redemption requirements.

The SEC’s Decision on Bitcoin ETF Applications

The SEC’s decision holds significant importance for various entities eagerly anticipating regulatory verdicts on their spot Bitcoin ETF applications. Notable asset managers such as Grayscale, Bitwise, BlackRock, WisdomTree, Galaxy, Invesco, Fidelity, Valkyrie, ARK Invest, Franklin, Global X ETFs, Hashdex, and Pando Asset all await the SEC’s decision, acknowledging its impact on the future of cryptocurrency exchange-traded funds.

Short-Term Sell-Off, Long-Term Gains

Meanwhile, Cathie Wood, the CEO of ARK Invest, foresees a short-term negative impact on BTC’s price once a spot Bitcoin exchange-traded fund (ETF) gains approval in the United States. Despite this short-term concern, Wood remains optimistic about its long-term benefits.

In a recent interview, Wood emphasized the probability of investors selling some of their BTC holdings for some profits following the announcement of a spot BTC ETF approval. According to her, it’s a common practice among traders. They anticipate an event that will drive up the price of an asset and then sell when the news of such an event becomes public.

Wood asserts that the spot Bitcoin ETF’s approval would primarily grant institutional investors access to Bitcoin. Wood believes that even a minimal allocation, such as 0.1% or 0.2% of institutional assets, into Bitcoin could significantly influence Bitcoin’s price.

Optimism Amidst Regulatory Progress

Recall that ARK Invest is among the 14 firms vying for a spot in Bitcoin ETF approval from the US SEC. Its proposed ETF, the ARK 21Shares Bitcoin ETF, is a collaboration with the European crypto exchange-traded product provider, 21Shares.

Wood remains optimistic about the approval, stating that the regulator has shifted its approach from silent rejections to engaging in extensive and technical talks. She opined that this changing stance indicates a more positive position toward Bitcoin ETF assessments. The ARK Invest CEO considers this step a positive move that will create opportunities for constructive conversations with the SEC.