On Wednesday (July 7), Timothy Massad, who served as the Chairman of the Commodity Futures Trading Commission (CFTC) under President Obma, said that granting conditional approval to a Bitcoin exchange-traded fund (ETF) would help both investors and the crypto industry.

Here is what Massad wrote in an op-ed piece (published yesterday) for Bloomberg about the potential for the approval of a Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC):

  • Bitcoin ETFs help retail investors because they provide a simply way to have Bitcoin exposure (i.e. they eliminate the complexities of buying and holding Bitcoin). Of course, an even bigger benefit is that ETF shares can be held in tax-deferred and tax-exempt retirement accounts. 401(k) and Roth 401(k) plans are popular examples of these two types of retirements accounts in the U.S.
  • Although in the past few years, several Bitcoin ETF proposals have been filed with the SEC, none have been approved mainly because the SEC has been concerned about “the risk of fraud and manipulation in the underlying cash market.”
  • The SEC does not have any control over spot exchanges since a cryptocurrency such as Bitcoin is not a security and the CFTC does not have any powers over them because it is only authorized to regulate derivatives exchanges.
  • “… investor protection is weak” since “there are no rules to prevent fraud, manipulation and other abusive practices.” Furthermore, “there are no disclosure or reporting requirements.” Also, “there are no prohibitions of conflicts of interest — some exchanges have proprietary trading operations that can compete against customer trades, and some have financial interests in the crypto assets they list.”
  • Although some people in the crypto community claim that Gary Gensler, the current SEC Chairman, should approve a Bitcoin ETF because (1) the Bitcoin market is now large enough that market maniuplation is more difficult and (2) there are now Bitcoin futures on U.S. derivatives exchanges (such as the CME) which are regulated by the CFTC , more is needed to ensure investors’ safety.
  • Although ideally the SEC would grant approval to a Bitcoin ETF after the U.S. Congress has introduced a strong regulatory framework for crypto, we are unlikely to see any crypto regulation get approved by the U.S. Congress anytime soon.
  • What the SEC can do in the mean time is to grant conditional approval to a Bitcoin ETF by mandating that “the ETF price be based on an index of exchanges meeting certain prescribed standards, similar to those for securities and derivatives exchanges.”
  • Standards that the SEC could insist such exchanges must comply with are those related to “reporting and disclosure, prevention of fraud, governance, prohibition on conflicts of interest, risk management, operational security and so forth.”
  • Such a move by the SEC would give crypto exchanges “a market incentive for exchanges to adopt such standards and for trading to flow to them.” It would also increase “investor protection.”

DISCLAIMER

The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.