SEC Commissioner Raises Concerns Over Bitcoin Product Approvals

In a recent development, members of the U.S. Securities and Exchange Commission (SEC) shared their perspectives on the approval of various spot Bitcoin products on Jan. 10.

Commissioner Caroline A. Crenshaw dissented, expressing worries about potential fraud and market manipulation, as well as broader concerns about Bitcoin. Notably, she contested the nature of the recent approvals, emphasizing that the products are not ETFs registered under the Investment Company Act of 1940. Crenshaw clarified that they fall under the category of exchange-traded products (ETPs) under the Securities Act of 1933.

SEC Chair and Others Echo ETP Terminology

SEC Chair Gary Gensler, despite voting in favor of the approvals, also referred to the products as ETPs. Commissioners Hester Peirce and Mark Uyeda, who supported the approvals, used similar terminology in their statements. However, none provided detailed explanations about the distinction between ETFs and ETPs.

SEC Order Highlights 'ETF' in Approval

The SEC order that granted approval mentioned several offerings with "ETF" in their names, including those from Bitwise, Hashdex, Ark Invest, Invesco Galaxy, and Franklin Templeton. Nevertheless, the order consistently described the products as spot Bitcoin ETPs in its text.

ETFs and ETPs: Clarification Needed

While the terms "ETF" and "ETP" are sometimes used interchangeably, Commissioner Crenshaw's concerns highlight potential confusion for investors. It remains uncertain whether the distinction between the two types of investment vehicles needs to be made clear in public communications from the asset managers behind each product.

Industry Players' Use of Terminology

Notably, Grayscale referred to its offering as an ETF in a recent press release, and Coinbase, involved in custodial and surveillance-sharing roles, also used the term "ETFs" in a blog post related to the latest approvals.

In conclusion, the recent SEC approvals have sparked concerns from Commissioner Crenshaw regarding potential investor confusion and the distinction between ETFs and ETPs. The use of varying terminology by industry players adds to the complexity, raising questions about the need for clear communication to ensure investor understanding and safety.