On January 10, the SEC finally approved 11 spot Bitcoin ETFs after a decade of applications. But despite the approval, the funds still faced criticism, even from senior Commission officials.
In fact, Commissioner Caroline Crenshaw has been a particularly vocal dissenting voice. Their criticism focused on fraudulent information from crypto exchanges, wash trading, and illogical reasoning from ETF sponsors.
Crenshaw called the SEC's proposed rule changes “incredible and ahistorical” and also claimed that these rule changes would weaken the SEC's ability to protect investors.
She pointed to widespread fraud and manipulation in Bitcoin spot markets and suggested that wash trading in Bitcoin markets could be to blame 77.9% of trading volume on unregulated exchanges.
Crenshaw also pointed out illogical arguments from ETF sponsors, including their claim that Bitcoin futures markets track the price of spot Bitcoin. She stated that this was an obvious fallacy of causation/correlation. Just because futures and spot markets have tracked each other in the past does not mean that the price of one market will continue to cause the other market to reliably set new prices.
Commissioner Crenshaw disagrees with the Grayscale decision
Commissioner Crenshaw also raised concerns about the concentration of Bitcoin ownership, which can lead to a “whale” or large mining company using its holdings to manipulate the price of the currency. She pointed to the “lack of unified oversight” over digital asset exchanges, which could lead to possible fraudulent activities.
She also disagreed with the D.C. District Court of Appeals' decision in Grayscale's favor. According to Crenshaw, futures markets are different from spot markets, even though the underlying asset may be the same.
Read more: Crypto reacts to SEC’s dramatic spot approval of Bitcoin ETFs
Futures markets are typically regulated by the CFTC and involve contracts to deliver an asset at a predetermined price at a future date. Spot markets involve direct trading of assets rather than contracts for future delivery.
Crenshaw took issue with the relatively unregulated nature of spot Bitcoin markets. The SEC’s rationale for its initial rejection of spot Bitcoin ETFs was based on concerns raised by its issuers. lack of ability to guarantee that fraud or market manipulation will not occur.
A key issue in the Grayscale case was the SEC's approval of Bitcoin futures ETFs while rejecting spot Bitcoin ETFs. Grayscale argued that any differences were merely details, as Bitcoin futures and spot markets depend on the same underlying asset. The judge agreed, calling the different treatment of similar products “arbitrary and capricious.”
ETF issuers cannot guarantee that spot Bitcoin exchanges will prevent manipulation, fraud and wash trading. This may be difficult considering that even Coinbase and Binance have been targets of enforcement actions over the past year.
Despite their disagreement over the approval of 11 spot Bitcoin ETFs, Crenshaw had no issues with Bitcoin itself and agreed that it works as a peer-to-peer e-cash system. Instead, their complaints focus on non-Bitcoin investment options like spot ETFs and opaque crypto exchanges, as well as the fact that the After losing the Grayscale case, the SEC now has to change its own rules.
The SEC consists of five commissioners, and most votes require a simple majority. This means that up to two dissenting opinions can be submitted per SEC action. In the majority opinion, Chairman Gary Gensler noted Grayscale's successful legal challenge to the SEC's rejection of converting GBTC into an ETF. With Grayscale’s victory, the courts supported the SEC’s lawful rule change allowing the listing of spot Bitcoin ETFs.
Gensler clarified that despite approving Bitcoin ETFs, the SEC does not endorse Bitcoin or recommend any particular investment.
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