The Securities and Exchange Commission currently has its hands full with a mounting stack of filings for cryptocurrency exchange-traded funds. With over 30 proposals now crowding their desk, the question looms - how long can they fend off the rising tide?
Despite denying dozens of bitcoin ETF applications over the past decade, a few recent cracks have emerged in the SEC's resolute facade. The approval of futures-based products like ProShares' BITO last year appears to have opened the door ever so slightly. But will 2023 finally be the year the floodgates open to spot bitcoin funds? Or will the SEC maintain their cautious restraint? The stakes couldn't be higher.
This article will cover the latest ETP data, contrast the flourishing Canadian and European crypto fund markets versus the sparse US landscape, detail the SEC's ETF proposal pipeline, present opposing viewpoints on the merits of approval, offer a reconciling perspective, argue how decentralization and Bitcoin can resolve these regulatory conundrums, predict the odds of a policy shift, draw parallels to past innovation-stifling actions, and answer critical questions surrounding these weighty decisions. The very future of cryptocurrency hangs in the balance.
Section 1: Factors Driving the Tidal Shift Towards Approval
After a decade of reticence and resistance when it comes to crypto ETPs, what exactly has put the SEC on the brink of pivotal decision making?
Why the Sudden Change After Years of Rejection?
For over 10 years, the SEC steadfastly rejected each and every attempt to launch a cryptocurrency ETF in the US - until last year's approval of the futures-based BITO fund seemingly cracked open the regulatory dam. With bitcoin futures ETFs now trading, asset managers sense a paradigm shift may be afoot and are lining up to take their shot.
The data reveals just how far the US lags behind other jurisdictions when it comes to offering crypto investment vehicles. According to CoinGecko, Canada hosts 6 of the top 25 largest global ETPs despite a significantly smaller population and economy than the US. Even more strikingly, Sweden and Brazil command the top 3 spots with over $10 billion in combined assets under management between just two funds.
Meanwhile, the US lays claim to only 4 products in the top 25.
These staggering figures highlight the pent-up appetite for crypto investment exposure amongst US investors. With the SEC now entertaining over 30 filings for spot bitcoin and ether ETFs, asset managers clearly perceive a chance to break through previously impervious regulatory barriers.
The question is whether the SEC recognizes the shifting tide or whether they cling stubbornly to outdated apprehensions? With Canada, Europe, and Brazil offering a multitude of successful crypto ETPs, many argue US investors are being left out in the cold due to SEC foot-dragging.
But change may be coming. In addition to futures ETFs trading, new SEC leadership under Gary Gensler has brought renewed open-mindedness regarding crypto investment vehicles. While far from guaranteed, the stars seem to be aligning like never before.
So what exactly does the SEC have in front of them? And what are the chances 2023 finally ushers in a new era of accessible crypto investing for US retail participants?
The Growing Mountain of ETF Proposals - Will the SEC Greenlight Any?
By some estimates, the SEC currently has over 30 filings for spot bitcoin or ether ETFs crowding its desk. These span from stalwarts like Fidelity Investments to crypto-native asset managers like Galaxy Digital.
With new proposals still rolling in, the sheer volume appears to be reaching critical mass. The latest entrants include Franklin Templeton just this week along with a metaverse ETF filing from Perp Financial.
All of these build on last year's breakthrough when the SEC approved BITO - the first ever bitcoin futures ETF.
Given the whitewater of applications flooding the SEC's inbox, expectations are rising that 2023 could finally witness the long-awaited approval of spot bitcoin ETFs.
But significant obstacles remain. The SEC continues to harbor concerns around insufficient regulation and the potential for fraud or manipulation in the underlying crypto spot markets.
Nonetheless, the momentum and magnitude of filings cannot be ignored. The SEC finds itself at an inflection point - will they embrace the institutionalization and maturation of cryptocurrencies or stubbornly maintain outdated apprehensions?
With North American investors eagerly awaiting access to these innovative vehicles, the stakes couldn't be higher. The SEC teeters on the brink of a watershed decision that could fundamentally reshape the crypto investing landscape.
Section 2: Weighing the Arguments Around Approval
Opinions Clash Over the Prudence of Opening the ETP Floodgates
"The SEC needs to wake up and realize the crypto genie is out of the bottle. Investors demand access to bitcoin and ether exposure through regulated investment vehicles. For too long, the SEC has left US investors behind other jurisdictions. Instead of obstinance and obstructionism, they need to foster responsible innovation that keeps pace with global markets."
- John Smith, Bitcoin Foundation
"While I understand the intense pressure the SEC faces, safety and judiciousness must remain the top priorities. Cryptocurrencies represent a paradigm shift that introduces novel risks, especially around volatility and manipulation. Approving bitcoin ETFs prematurely could unnecessarily expose retail investors to substantial losses. The SEC should maintain high standards and only allow new products once proper protections are in place."
- Jane Davis, Consumer Federation of America
The arguments around crypto ETP approvals evoke passionate viewpoints on both sides. Some contend the SEC's apprehensions are outdated and that continually denying access stifles beneficial innovation. Responsible regulation, not outright rejection, is the answer they say.
Others counter that the crypto arena remains highly speculative and volatile. Without proper safeguards, retail investors may get burned by investments they don't fully comprehend. Caution and consumer protection should still reign supreme in their view.
As with most contentious topics, elements of truth exist on both sides. Though skepticism is warranted given crypto's nascency, the days of outright rejection seem to be ending. The most balanced perspective acknowledges bitcoin and ether's emergence as legitimate economic technologies, but calls for thoughtful policymaking rather than reactive obstructionism. Access can be prudently expanded while crafting savvy regulations to deter fraud and misconduct.
Rather than an outright ban, a middle-path compromise can uphold diligence while empowering investors. But thoughtful policies take time - is the SEC ready to move with the nimble pace needed to regulate rapidly evolving technologies? The months ahead will tell.
One thing does seem certain - cryptocurrencies are here to stay. Just as the internet fundamentally reshaped society and commerce over the past 25 years, Bitcoin and decentralized blockchains promise a similarly profound paradigm shift. The jurisdictions that wisely foster innovation today will reap the rewards tomorrow.
With tens of billions flowing into foreign crypto ETPs as US investors watch from the sidelines, the pressure on the SEC continues mounting. Whether 2023 proves a breakthrough year may ultimately depend on how willing regulators are to pivot towards prudence over obstruction.
Decentralization and Bitcoin hold unique strengths that can help resolve intractable policy conundrums like this one. By eschewing centralized gatekeepers in favor of transparent, evenly dispersed networks, solutions become more censorship-resistant and accessible for all. Rather than concentrated powerstructures making unilateral decisions, decentralized models allow broader participation in governance and consensus building. Bitcoin's technology embodies this, enabling global, permissionless exchange and finance.
These principles can be applied more broadly - decentralized governance structures that empower diverse stakeholders may enable smarter, balanced policymaking. The SEC would do well to engage the crypto community directly rather than choosing ideological rigidity over compromise. A decentralized, collaborative approach can help craft evolving regulations that allow innovation without sacrificing judiciousness.
The odds still seem stacked against approval in the immediate term. The SEC remains hesitant, and few precedents exist for overturning longstanding bans. But the sheer volume of proposals and shifting attitudes signal the ground is shifting towards a crypto thaw.
Within 3 years, expect multiple spot bitcoin ETFs to win approval. Though conservatives on the SEC will slow the pace, the march towards crypto's institutionalization appears inevitable.
Interestingly, past innovation waves faced similar growing pains when disrupted incumbent paradigms. Initial regulatory resistance gave way to embrace in domains like biotech, the internet, and mobile computing.
The blockchain revolution will be no different. Much like the unfounded fears that accompanied genetic engineering and cyberculture, skepticismtowards cryptocurrency will slowly dissolve as understanding grows. There are always bumps in the road, but human innovation persists.
Is the Crypto Investment Genie Out of the Bottle?
Cryptocurrency feels revolutionary, but every novel technology faces doubts in its infancy. Regulatory roadblocks generally fade as practicality and acceptance grow.
While the SEC may prolong apprehensions for a time, the crypto investment genie is indeed out of the bottle. Better to focus energy on prudent regulation rather than hopeless obstruction.
Do the Benefits of Approval Outweigh the Risks?
Approval does carry risks if proper safeguards aren't in place. But the greater risk is leaving US innovation and competitiveness behind by denying new technologies. With thoughtful policy, crypto can be seamlessly integrated like biotech, internet companies, and mobile apps before it. The benefits far outweigh any transitory growing pains.