Quick Overview of SEC Approval of Spot BTC ETF Official Statement

Author: SEC Chair Gensler

On January 11, according to Reuters, documents from the U.S. Securities and Exchange Commission (SEC) show that the SEC has approved 11 spot Bitcoin ETFs, including those from VanEck, Bitwise, Fidelity, Franklin, Valkyrie, Hashdex, Ark Invest, Grayscale, BlackRock, WisdomTree, and Invesco Galaxy.

SEC Chair Gensler issued a statement on the SEC website regarding the approval of Bitcoin spot ETFs. The approval was largely influenced by the D.C. Circuit Court of Appeals ruling that the Commission failed to adequately explain its reasoning for not approving the Grayscale ETF.

He stated: While we have approved the listing and trading of certain spot Bitcoin ETP shares today, we have not approved or endorsed Bitcoin.

Investors should remain cautious about the myriad risks associated with products related to Bitcoin and its value in the cryptocurrency space.

Below is the full text:

Today, the Commission approved the listing and trading of various spot Bitcoin exchange-traded products (ETPs).

I often say that the Commission acts in accordance with the law and the courts' interpretation of the law. Since 2018, under the leadership of Chair Clayton and continuing until March 2023, the Commission did not approve over 20 exchange rule submissions for spot Bitcoin ETPs. One of these was proposed by Grayscale, which planned to convert the Grayscale Bitcoin Trust into an ETP.

What we now face is a series of applications similar to those we previously did not approve. However, circumstances have changed. The D.C. Circuit Court of Appeals ruled that the Commission failed to adequately explain its reasoning for not approving the Grayscale proposed ETP for listing and trading (Grayscale decision[1]). Therefore, the court vacated the Grayscale decision and remanded the issue to the Commission. Based on these circumstances and the matters discussed in more detail in the approval order, I believe the most sustainable path forward is to approve the listing and trading of these spot Bitcoin ETP shares.

The Commission evaluates any rule submissions from national securities exchanges to determine whether they are consistent with the Securities Exchange Act and related regulations, including whether they are designed to protect investors and the public interest. The Commission is neutral and does not take a position on specific companies, investments, or the underlying assets of ETPs. If a securities issuer and the listing exchange comply with the securities laws, the Exchange Act, and the Commission's regulations, that issuer must be afforded the same right to enter our regulated markets as anyone else.

Importantly, today's action by the Commission is limited to ETPs that hold Bitcoin, a non-security commodity, and does not imply that the Commission is willing to approve listing standards for securities of crypto assets. This approval also does not represent the Commission's views on the status of other crypto assets under federal securities laws or the current non-compliance status of certain crypto market participants. As I have said in the past, there is no presumption against any particular crypto asset; the vast majority of crypto assets are investment contracts and therefore subject to federal securities laws[2].

Today's investors can already purchase, sell, or otherwise obtain investment opportunities in Bitcoin through many brokerage firms, mutual funds, national securities exchanges, peer-to-peer payment apps, non-compliant cryptocurrency trading platforms, and the Grayscale Bitcoin Trust. Today's action will provide some protections for investors:

First, the sponsors of Bitcoin ETPs will be required to provide adequate, fair, and truthful disclosures about the products. Investors holding any listed and traded Bitcoin ETPs will benefit from public registration statements and required periodic reports. While these disclosures are required, it is important to note that today's action does not represent an endorsement of the ETP arrangements for disclosures (such as custody arrangements).

Second, these products will be listed and traded on registered national securities exchanges. Such regulated exchanges must have rules designed to prevent fraud and manipulation, and we will closely monitor them to ensure they enforce these rules. Additionally, the Commission will conduct a comprehensive investigation into any fraud or manipulation in the securities markets, including schemes that utilize social media platforms[3]. Such regulated exchanges also have rules designed to address certain conflicts of interest and to protect investors and the public interest.

Furthermore, existing rules and codes of conduct will apply to the purchase and sale of approved ETPs. For example, when a securities broker recommends an ETP to retail investors, the Best Interest Regulation will apply; investment advisors have fiduciary duties under the Investment Advisers Act. Today's action does not approve or endorse cryptocurrency trading platforms or intermediaries, which are largely non-compliant with federal securities laws and often have conflicts of interest.

Third, the Commission staff is simultaneously completing the review of registration statements for 10 spot Bitcoin ETPs, which will help create a fair competitive environment for issuers, benefiting investors and the broader market.

Since 2004, the agency has experience regulating certain non-security commodity ETPs, such as precious metals. This experience will be very valuable in overseeing the trading of spot Bitcoin ETPs.

While we are neutral, I want to point out that the underlying assets of precious metals ETPs have consumption and industrial uses, whereas Bitcoin is primarily a speculative and highly volatile asset that is also used for illegal activities, including ransomware[4], money laundering[5], sanctions evasion[6], and terrorist financing[7].

Although we have approved the listing and trading of certain spot Bitcoin ETP shares today, we have not approved or endorsed Bitcoin. Investors should remain cautious about the many risks associated with Bitcoin and its value in the cryptocurrency space[8]. References: [1] See Grayscale Investments, LLC v. SEC, No. 22-1142, 82 F.4th 1239 (D.C. Cir. 2023).

[2] Courts have similarly found that certain crypto assets were offered and sold as investment contracts. See, e.g., SEC v. Terraform Labs Pte. Ltd., No. 23-cv-1346, 2023 WL 8944860 (S.D.N.Y. Dec. 28, 2023); SEC v. Blockvest, LLC, No. 18-cv-2287, 2019 WL 625163, at 4-9 (S.D. Cal. Feb. 14, 2019); SEC v. Nat. Diamonds Inv. Co., 19-cv-80633, 2019 WL 13277296, at 8-10 (S.D. Fla. May 28, 2019); SEC v. Telegram Grp. Inc., 448 F. Supp. 3d 352, 368-79 (S.D.N.Y. 2020), appeal dismissed, No. 20-1076, 2020 WL 3467671 (2d Cir. May 22, 2020); SEC v. Kik Interactive Inc., 492 F. Supp. 3d 169, 177-80 (S.D.N.Y. 2020); SEC v. NAC Found., LLC, 512 F. Supp. 3d 988, 995-97 (N.D. Cal. 2021); SEC v. LBRY, Inc., 639 F. Supp. 3d 211, 216-21 (D.N.H. 2022), appeal dismissed, No. 23-1743 (1st Cir. Oct. 23, 2023); SEC v. Terraform Labs Pte. Ltd., No. 23-cv-1346, 2023 WL 4858299, at 10-15 (S.D.N.Y. July 31, 2023).

[3] See SEC v. Constantin, No. 22 Civ. 4306 (S.D. Tex.).

[4] See U.S. Senate Committee on Homeland Securities & Government Affairs, "Use of Cryptocurrency in Ransomware Attacks, Available Data, and National Security Concerns" (May 24, 2022), available at https://www.hsgac.senate.gov/wp-content/uploads/imo/media/doc/HSGAC%20Majority%20Cryptocurrency%20Ransomware%20Report_Executive%20Summary.pdf.

[5] See Basel Institute on Governance, "Quick Guide 1: Cryptocurrencies and Money Laundering Investigations" (August 2023), available at https://baselgovernance.org/publications/quick-guide-1-cryptocurrencies-and-money-laundering-investigations. See also Chainalysis, "Crypto Money Laundering: Four Exchange Deposit Addresses Received Over $1 Billion in Illicit Funds in 2022" (Jan. 26, 2023), available at https://www.chainalysis.com/blog/crypto-money-laundering-2022/.

[6] See Center for Strategic & International Studies, "Cryptocurrencies and U.S. Sanctions Evasion: Implications for Russia" (Dec. 20, 2022), available at https://www.csis.org/analysis/cryptocurrencies-and-us-sanctions-evasion-implications-russia. See also UK Finance, "The Cyber-Crypto-Sanctions Nexus" (Feb. 4, 2020), available at https://www.ukfinance.org.uk/news-and-insight/blogs/cyber-crypto-sanctions-nexus.

[7] See Congressional Research Service, "Terrorist Financing: Hamas and Cryptocurrency Fundraising" (Nov. 27, 2023), available at https://crsreports.congress.gov/product/pdf/IF/IF12537; U.S. Department of the Treasury, "Following Terrorist Attack on Israel, Treasury Sanctions Hamas Operatives and Financial Facilitators" (Oct. 18, 2023), available at https://home.treasury.gov/news/press-releases/jy1816; The Rand Corporation, "Terrorist Use of Cryptocurrencies: Technical and Organizational Barriers and Future Threats" (2019), available at https://www.rand.org/pubs/research_reports/RR3026.html.

[8] See, e.g., Securities and Exchange Commission Office of Investor Education and Advocacy, "Exercise Caution with Crypto Asset Securities: Investor Alert" (March 23, 2023), available at https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/crypto-asset-securities.