Today, the U.S. Court of Appeals for the D.C. Circuit unanimously ruled in Grayscale Investments v. SEC that the Securities and Exchange Commission’s denial of the application by financial firm Grayscale to offer a regulated Bitcoin exchange-traded fund (ETF) was “arbitrary and capricious.” CEI Director of Finance Policy and Senior Fellow John Berlau deems the ruling a victory for investor choice that could enhance options to buy potentially safer cryptocurrency products.
“Today’s ruling – in which the majority of the judges were appointed by Democratic presidents –could open the door for many firms to offer similar cryptocurrency funds to ordinary investors. The SEC’s majority should heed the words of the Court as well as those of Commissioner Hester Peirce – who dissented from and critiqued the SEC’s denial of ETF and other exchange-traded products for the cryptocurrency market.
“As early as 2018, Peirce stated that the SEC’s rejection of a similar cryptocurrency ETF ‘signals an aversion to innovation that may convince entrepreneurs that they should take their ingenuity to other sectors of our economy, or to foreign markets, where their talents will be welcomed with more enthusiasm.’ She criticized the SEC for making value judgments about the overall riskiness of the bitcoin market rather than focusing on whether the ETF itself provided adequate disclosure, pointing out the SEC’s statutory mandate involves disclosure and not the merits of particular investments. And she pointed out the irony that the SEC’s rejection of crypto ETFs ‘unintentionally undermines investor protection,’ as it ‘precludes investors from accessing bitcoin through an exchange-listed avenue that offers predictability, transparency, and ease of entry and exit.’
“The option of being able to invest in cryptocurrencies such as Bitcoin through an ETF listed on major U.S. exchanges – rather than a trading platform in which custody issues regarding the asset are uncertain – would provide a potentially safer alternative to many average investors seeking exposure to the cryptocurrency market. If crypto ETFs had been approved when Peirce called for them to be in 2018, many investors could have avoided purchasing cryptocurrency through trading venues – most notably FTX — that collapsed due to mismanagement and alleged fraud. The SEC needs to move prudently but quickly to give the option of crypto ETFs to investors who desire to purchase them.”