Bitcoin ETF Approval Odds Grow Longer After Gensler Critique

At least nine new U.S. crypto ETF filings stoked optimism regulatory approval was close. Wall Street’s top cop all but doused it with a string of comments last week.

Freshly sworn-in Securities and Exchange Commission Chairman Gary Gensler told Congress that the cryptocurrency market “could benefit from greater investor protection,” signaling that a long-stated prerequisite for SEC oversight of the industry has not been met. He also urged lawmakers give the agency regulatory authority over trading venues, a stance he reiterated in a CNBC interview Friday.

Gensler’s comments were likely an unwelcome reality check for crypto and ETF enthusiasts alike. Bitcoin ETF approval was being touted by many industry boosters as a nearly sure-thing in 2021, amid new SEC leadership, Wall Street’s growing crypto embrace and the launch of similar funds in Canada. However, Gensler’s skeptical remarks and a hefty regulatory to-do list has some experts pushing out the potential time line.

“The SEC has made their priorities clear, and vetting crypto ETFs is not one of them,” said Ben Johnson, Morningstar Inc.’s global director of ETF research. “Given that the SEC has bigger fish to fry, and taking Gensler’s recent remarks regarding crypto ETFs into account, I think the odds we’ll see a Bitcoin ETF approved in 2021 are very low.”

Bitcoin ETF Approval Odds Grow Longer After Gensler Critique

Efforts have been underway for nearly a decade to get a Bitcoin ETF launched stateside. U.S. regulators have rejected every application since the first was filed in 2013, citing concerns about manipulation and criminal activity.

Nevertheless, a raft of crypto ETF applications have been filed this year. Advocates predicted Gensler would prove more open-minded toward the structure than his predecessor Jay Clayton, given that he once taught a class at MIT’s Sloan School of Management called “Blockchain and Money.”

However, the SEC under Gensler’s leadership has punted its deadline to make a decision once already, and the chair’s scrutiny of crypto exchanges suggests the agency is proceeding cautiously. Trading disruptions are relatively run-of-the-mill in the crypto sphere, where trading hubs are lightly regulated relative to traditional exchanges.

“SEC concerns over fraud and manipulation in the Bitcoin spot market have been the primary roadblock for a Bitcoin ETF approval,” said Nate Geraci, president of the ETF Store, an advisory firm. “If Gensler isn’t yet fully comfortable with crypto exchanges, it’s highly unlikely he would bless a Bitcoin ETF.”

The SEC didn’t immediately respond to a request for comment.

Bitcoin ETF Approval Odds Grow Longer After Gensler Critique

Bitcoin, the world’s largest cryptocurrency, has doubled so far in 2021 after climbing over 300% last year. A recent rally in so-called alt-coins have put those gains to shame -- Ether is roughly 460% higher year-to-date, while Dogecoin, the joke cryptocurrency that’s found new life as an internet meme, has surged more than 16,000% in the past year, according to CoinGecko.

Three Bitcoin ETF filings have been acknowledged by the SEC, meaning it has a limited amount of time to either approve or reject the proposals. However, with Gensler’s recent remarks in mind, it’s unlikely that any of those filings will be given the green light in their current form, according to Dave Nadig, the chief investment officer at data provider ETF Trends.

“There’s zero chance any existing filing goes through with no modifications whatsoever. I’m still thinking this year, but honestly, who knows,” said Nadig. “It could be tomorrow or never.”

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.