John Reed, the former attorney for the U.S. Securities and Exchange Commission (SEC), says that it is unlikely that the financial regulator will change its stance on exchange-traded funds (ETFs) in Bitcoin spot markets until after the 2024 Presidential election.
The founder and former chief of the SEC’s Office of Internet Enforcement explained a range of compelling reasons for it. To support his arguments made on X (formerly Twitter), Reed referred to a Comment Letter presented to the SEC on August 8 by the non-profit financial organization Better Markets.
SEC Unlikely to Change its Views Regarding Bitcoin Spot ETFs Until 2024 Elections
The Washington-based think tank has been urging the regulator to reject Bitcoin ETF filings because “they will expose investors to fraud, manipulation, and investor harms”. Better Markets has frequently echoed the SEC’s regulatory approach to crypto, arguing that Bitcoin markets are “too concentrated” and the Bitcoin network is “overly reliant” on a select group of individuals and entities to make it work.
Reed’s admissions come on the heels of BlackRock, the world’s largest asset manager holding $9 trillion worth of assets under management, filing an application for a spot Bitcoin ETF in June. Several other Wall Street big shots also joined in to file their own applications with the SEC.
In his Twitter thread, Reed made predictions surrounding the future of the SEC’s crypto regulations and how things may change based on the outcome of the upcoming Presidential election. He says cryptocurrencies have become a bi-partisan political issue in the country.
A Republican Administration Would be More Crypto-Friendly
According to the former head of the Office of Internet Enforcement, should a Republican nominee get elected as President in 2024, their administration’s SEC appointees “will likely” decrease the agency’s crypto enforcement efforts by focusing more on fraud cases instead of securities registration violations.
Secondly, Reed says that Republicans are “far more receptive” to approving a Bitcoin spot ETF and are more likely to introduce crypto-friendly regulations than their Democratic counterparts.
The SEC is an independent federal agency headed by a five-member Commission which is appointed by the President and confirmed by the Senate. To maintain the agency’s non-partisanship, it ensures that no more than three Commissioners belong to the same political party. The President is also responsible for designating one of the Commissioners as the SEC’s top executive – the Chair.
As soon as a new administration takes office, the standing SEC Chairman resigns, and the new Chair is not confirmed until at least 3-4 months after the Inauguration Day. If Joe Biden does not win a second term, current SEC Chairman, Gary Gensler, would likely resign.
Reed expects SEC Commissioner Hester Peirce to be appointed the acting chairman if at all the Republicans win the election. With a proven track record of objecting to most crypto-related SEC enforcement actions, he claims that Peirce would bring an end to all disruptions caused by the agency to the industry.
Reed believes that Republicans are in general, more supportive of cryptocurrencies than Democrats.
Will the SEC Approve an ETF for the Bitcoin Spot Markets?
Since at least 2013, the SEC has rejected Bitcoin spot ETF applications on the ground of the crypto sector being prone to market manipulation, wash trading, and artificially inflated trading volumes. But in October 2021, the agency allowed ETFs in the Bitcoin futures market to be listed and operated in the United States.
In response to the securities watchdog’s stringent enforcement action on crypto, U.S. lawmakers are currently considering legislation to better define the roles the SEC and the Commodities Futures Trading Commission (CFTC) should have in regulating crypto and digital assets.
Many analysts suggest that the chances of a spot Bitcoin ETF being approved in the country are relatively high because of BlackRock’s interest in the investment instrument.
Crypto asset managers ARK Invest and Grayscale expect the SEC to approve multiple ETF applications simultaneously to avoid any of the applicants having an unfair advantage over the other.
The applications currently under review are from asset managers BlackRock, Fidelity, ARK Invest, Bitwise Asset Management, VanEck, WisdomTree, Invesco, Galaxy Digital, and Valkyrie. The SEC has a 240-day extension window, during which the agency will open the applications to public comment and will also have the authority to reject the filings.
The final deadline for the first batch of the Bitcoin spot ETF applications is in January 2024, while the approval or denial of the remaining offerings will be confirmed by March 2024.
At the time of writing, Bitcoin (BTC) is trading at $29,132.
