Regulators are Overly Cautious on Bitcoin ETFs Despite US SEC Commissioner Calling for the Overdue Regulation

Whilst Bitcoin sees institutional adoption, regulators are still dragging their feet on approving Bitcoin ETF as SEC member calls it overdue

Unequal Treatment

One of the most pressing questions in the crypto world today is when the United States of America will allow for a Bitcoin Exchange Traded Fund (ETF) to be openly traded in the stock exchange. The delay is rather perplexing as the country has already made a few important decisions in preparations. It recognized Bitcoin and Ethereum as commodities. Coinbase, a crypto trading platform, was also allowed to go public. Kraken, a crypto exchange company, was awarded a bank charter. The regulation seems to be falling into place, but surprisingly, the country’s first crypto ETF is still pending approval. 

Hester Peirce, a Securities and Exchange Commission member, has voiced her concerns on the long-overdue regulatory approval.

In an interview with CNBC on July 1, 2021 she said: “I thought that if we had applied our standards as we have applied them to other products, we would already have approved one or more of them.”


Countries around the world are starting to allow Bitcoin ETFs to operate. Canada approved 3 Bitcoin ETFs, and their latest addition was Michael Novogratz’s Galaxy Digital, a company headquartered in New York, America. On June 24, Brazil gave the green light to QR Capital to commence trading as a Bitcoin ETF in the Brazil stock exchange. The world has begun to prepare regulations to adapt to Bitcoin’s arrival. The US SEC risks facing a blatant policy double standard if it does not follow the rest of the world.


What is the Real Reason for Delay?

Two major concerns that have always prevented regulators from allowing crypto assets to be openly traded are the risk of market manipulation and liquidity. The crypto market has grown by leaps and bounds, and today it has a market capitalization of around $1.45 trillion on CoinMarketCap. The liquidity concerns have dissipated, and in light of mainstream adoption, there has wider acceptance by the public. 

Peirce believes that regulators are extra cautious when faced with a new industry, especially something, unlike traditional markets. Hence the heightened standard by seeking much more than is required from the traditional products. This mindset could also stem from the lack of understanding and falling victim to the common narrative of market manipulation, and misuse of crypto for illegal activities increases the need for more safeguards.


Need for a Shift in Regulatory Perception  

It is pertinent that regulators must start to adopt a more forward-looking stance. More asset management firms such as Ark Investments and VanEck are queuing and knocking at the door of the U.S. Securities and Exchange Commission. These knocks are telling of the market’s demand for a Bitcoin ETF. Instead of decrying crypto assets by citing price volatility, allowing for more derivatives to be created of an underlying asset is a hedge against volatility. 

Regulators are well prepared to handle this new asset class. There is no longer any need for artificial protectionism built on flimsy and archaic narratives surrounding crypto assets such as Bitcoin and Ethereum. Peirce herself explained to CNBC that she believes that the markets have matured quite a bit. Current SEC Chairman, Gary Gensler, is in a prime position to debunk those myths and take a courageous step, not to explore new frontiers but merely to apply the same standards that have been imposed on traditional equity products. 

Easier Said Than Done

It is not easy to change regulatory perception. The best way forward is through education. The regulators must understand how this new asset functions and how it can be best regulated. The only fallback is that education is a slow process. Many criticisms leveled against crypto assets can easily be resolved by regulatory and institutional adoption. Overregulating or not regulating is in itself a scourge that must first be addressed. 

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