SEC - Page 35

On January 19, the United States Securities and Exchange Commission (SEC) made a significant move by acknowledging the proposals submitted by Nasdaq and the Cboe regarding the introduction of options trading for Bitcoin exchange-traded funds (ETFs).

Nasdaq initiated a rule change request to facilitate the listing and trading of options linked to BlackRock’s iShares Bitcoin Trust, while the Cboe applied for permission to trade options linked to “ETPs (exchange-traded products) that Hold Bitcoin.”

Notably, the Cboe had recently launched six out of the ten BTC ETFs that had received SEC approval.

The much-anticipated BTC ETFs commenced trading on both the Nasdaq and Cboe platforms on January 11, just one day after obtaining approval from the SEC.

Catherine Clay, the Executive Vice President of Cboe, disclosed that the exchange was experiencing “good inflows” into the BTC ETFs, which were closely tracking the price of Bitcoin, aligning with expectations.

According to Clay, introducing BTC ETF options trading was the “next logical step” for these products, as it would enhance their utility and provide risk mitigation capabilities.

Nasdaq supported this notion by stating that options would deliver “cost efficiencies and increased hedging strategies.”

Options are financial derivatives that grant the holder the right to buy or sell an asset at a predetermined price and time.

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Analyst Dave Nadig from VettaFi suggested that this move could attract various hedge fund players to the BTC ETF options space who may not have previously ventured into the cryptocurrency ecosystem directly.

Cboe submitted its request for options trading permission just last week, and Clay expressed uncertainty regarding the regulatory approval process, emphasizing that it was challenging to predict the outcome.

Moreover, Cboe’s options clearing corporation had to make corresponding filings with both the SEC and the Commodity Futures Trading Commission, adding an additional layer of complexity to the situation.

James Seyffart, an ETF analyst at Bloomberg, noted the unexpected speed at which Nasdaq had made its announcement, suggesting that approval for options trading could potentially be granted as early as the end of February, or at the latest, around September 21.

These proposals are now open for public comment for a period of 21 days after their publication in the Federal Register, allowing stakeholders and interested parties to provide their input and perspectives on this pivotal development in the cryptocurrency and financial markets.

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The United States Government Accountability Office (GAO) recently offered crucial recommendations to the Securities and Exchange Commission (SEC) in anticipation of its approval of a spot Bitcoin exchange-traded fund (ETF) on January 10.

These recommendations primarily revolved around workforce management for the digital asset market and the regulatory approach towards the burgeoning industry in the upcoming years.

The GAO presented these recommendations to the SEC on December 15, and they were made public on January 16.

The GAO’s report advised the SEC to develop a new workforce plan, establish clear policies and procedures for its Strategic Hub for Innovation and Financial Technology (FinHub) internal controls, and formulate performance objectives for the hub.

The GAO, known for its independent and nonpartisan role within the U.S. federal government’s legislative branch, provides auditing, evaluation, and investigative services for the U.S. Congress.

Upon assessing the SEC’s readiness to handle the growing crypto market, the GAO identified that the agency currently employs 116 individuals primarily focused on crypto asset matters.

However, the SEC has yet to create an updated workforce planning strategy, despite the need to align with its fiscal years 2019–2022 strategy.

The GAO suggested that such a strategy would better equip the SEC to address future workforce requirements and effectively fulfill its responsibilities in overseeing and formulating policies related to crypto assets.

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Additionally, the GAO observed that while the SEC’s FinHub coordinates oversight of emerging technology, it lacks documented policies, procedures, and performance goals, even though it has established operational processes like meetings with market participants.

In response to their assessment, the GAO issued three recommendations:

1. The SEC’s chief should ensure that the chief human capital officer devises a new workforce planning strategy in line with the agency’s 2022–2026 strategic and performance plans.
2. The SEC’s chief should ensure that the FinHub director documents policies and procedures that underpin its internal controls.
3. The chair of the SEC should ensure that the FinHub director establishes performance goals and metrics that are clear, quantifiable, and targeted.

For each of these recommendations, the GAO included a live status section to monitor whether the SEC takes appropriate actions on them.

In a landmark decision, the SEC granted approval for 11 spot Bitcoin ETF applications on January 10. The internal document shared by the SEC revealed that the proposal received three votes in favor and two against. SEC chief Gary Gensler’s decisive vote marked the approval of the first spot BTC ETFs in the U.S., ending nearly a decade of rejections.

Notably, gold enthusiast and prominent Bitcoin critic Peter Schiff suggested that Gensler was pressured into approving the spot Bitcoin ETFs.

However, Schiff cautioned that Gensler might introduce stringent crypto regulations in the near future, potentially increasing the cost of Bitcoin transactions and undermining its utility, which could lead to a significant price drop.

All the approved spot BTC ETFs commenced public trading the following day, quickly amassing over $2 billion in trading volume on their debut.

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Following the recent approval by the United States Securities and Exchange Commission (SEC) of spot Bitcoin exchange-traded funds (ETFs), SEC Commissioner Mark Uyeda has expressed significant reservations regarding several aspects of the approval process.

While Uyeda voted in favor of the groundbreaking decision to approve these Bitcoin ETF applications, he voiced concerns about the underlying analytical approach adopted by the commission.

One of Uyeda’s primary concerns revolves around the potential long-term repercussions of the SEC’s reasoning in the approval order.

He worries that the flawed rationale and legal analysis employed in this case may serve as a precedent for future decisions, impacting the crypto industry for years to come.

Uyeda’s foremost objection centers on the SEC’s differentiation between Bitcoin and other commodities.

He believes that Bitcoin should be treated on par with other commodities and criticizes the commission’s use of the “significant size” test as a unique benchmark for spot Bitcoin ETP (exchange-traded product) applications.

According to Uyeda, spot Bitcoin ETPs should have been approved much earlier under this standard, and he questions why they continue to be treated differently than Bitcoin futures ETPs under the “significant market” test.

Although none of the Bitcoin ETF applicants met the SEC’s significant market test, the approval cited “other means” that satisfied the requirements.

Uyeda contends that the SEC’s decision to introduce a new standard after applicants spent years pursuing the significant market requirement was unjust.

He argues that the commission should have communicated its expectations more clearly to applicants, rather than forcing them to make multiple attempts with uncertain criteria.

Furthermore, Uyeda suspects that the SEC’s motivation for expediting the approval of spot Bitcoin ETFs was to gain a competitive advantage.

He points out a lack of analysis concerning how the cash-only creation and redemption feature might prevent fraudulent activities.

He emphasizes the importance of transparency in the analysis and reasoning behind approval orders.

In a somewhat contradictory stance, Uyeda ultimately supports the issuance of the approval order, despite his objections to the legal analysis presented in it.

He cites independent reasons for concluding that the applications met the approval standards outlined in the Exchange Act.

Nonetheless, his critique underscores the need for greater clarity, consistency, and fairness in the SEC’s approach to regulating cryptocurrency-related financial products.

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The recent decision by the United States Securities and Exchange Commission (SEC) to approve the country’s first spot Bitcoin exchange-traded funds (ETF) has sent ripples of excitement through both the traditional finance (TradFi) and decentralized finance (DeFi) spaces.

This historic decision has sparked curiosity about its potential impact on the markets and, of course, on the price of Bitcoin itself.

Across the Atlantic in Europe, however, the excitement surrounding a Bitcoin ETF has already somewhat subsided. Europe witnessed the introduction of its first spot Bitcoin ETF on August 15, 2023.

The Jacobi FT Wilshire Bitcoin ETF made its debut on the Euronext Amsterdam stock exchange, more than a year after its originally planned launch.

This pioneering ETF was issued by Jacobi Asset Management, a London-based firm.

What set the Jacobi Bitcoin ETF apart was that it was the first physical-backed Bitcoin fund, offering investors exposure to a financial product backed by actual Bitcoin.

Moreover, it was classified as an “environmental investing” or Article 8 fund, promoting environmental and/or social characteristics.

Grzegorz Drozdz, a market analyst at the European Union-based financial services platform Conotoxia, discussed the market implications of U.S. spot Bitcoin ETFs, particularly from a European perspective.

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He noted that the introduction of Bitcoin ETFs has significantly democratized access to the crypto market, moving beyond traditional cryptocurrency exchanges and wallets.

However, Drozdz pointed out that while Bitcoin ETFs are making waves, their size is still relatively small compared to the overall financial and crypto market.

The total capitalization of the cryptocurrency market stands at $1.78 trillion, and existing investment funds in this sector represent only 2.9% of this total value.

In the European Economic Area, there seems to be a greater openness to institutional investment in cryptocurrencies with the launch of Bitcoin ETFs.

However, Drozdz observed that these funds have not yet generated substantial inflows from institutions in Europe. Market expectations are currently more focused on the potential approval of such instruments in the U.S., which could have a more significant impact on the long-term development of the crypto world.

Despite the uncertainties, Drozdz emphasized the rapid increase in the inflow of new funds into the Bitcoin ETF space, which could potentially signal the start of a new bull market.

Given that Bitcoin still commands a substantial 53.7% share of the market’s capitalization, its success could have a significant ripple effect on the rest of the digital currency market.

This sentiment aligns with the speculations of other analysts and social media communities as they await the SEC’s decision on Bitcoin ETFs.

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Prominent lawyers and senators in the United States are urging Congress to launch an inquiry into the U.S. Securities and Exchange Commission (SEC) following a reported compromise of their Twitter account, previously known as X, which disseminated false news regarding the approval of spot Bitcoin exchange-traded funds (ETFs).

Senator Bill Hagerty expressed his dismay over the incident, drawing a parallel between the SEC’s accountability and that of public companies in case of a significant market-moving error.

Hagerty insisted that Congress should seek answers, deeming the situation unacceptable. Senator Cynthia Lummis also called for greater transparency from the SEC regarding the events leading to the erroneous post.

Charles Gasparino from Fox Business revealed that securities lawyers had informed him that the SEC would need to investigate itself for potential market manipulation. U.S. Representative Ann Wagner described the incident as “clear market manipulation” that adversely affected millions of investors, vowing to obtain more information from SEC Chair Gary Gensler.

Bloomberg ETF analyst James Seyffart speculated that Gensler would be displeased with the staff member responsible for the alleged security breach, foreseeing consequences for the individual involved.

Investment manager Timothy Peterson criticized the SEC, arguing that its security breach amounted to a potential market manipulation event, a violation of the commission’s core mission of safeguarding investors.

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The incident in question, labeled as market manipulation, involved the SEC’s Twitter account, which falsely claimed the approval of spot Bitcoin ETFs.

X Safety, an account under the control of X, confirmed that the SEC’s account had been compromised due to an unidentified individual gaining control over a phone number linked to the SEC account through a third party.

Notably, the SEC’s X account lacked two-factor authentication at the time of the breach.

Layah Heilpern, a Bitcoin advocate, highlighted that the false post remained online for 20 minutes and garnered at least 4.4 million views during that period.

Heilpern asserted that this amounted to clear market manipulation.

The SEC has not provided detailed information on how their Twitter account was compromised but has denied the involvement of its staff in publishing the unauthorized tweet.

Despite the controversy, Bloomberg ETF analyst Eric Balchunas remains optimistic about the official approval of spot Bitcoin ETFs, expecting an announcement sometime between 4:00 pm to 5:00 pm Eastern Time on January 10.

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Bitcoin is unlikely to experience an immediate bullish surge in response to the United States Securities and Exchange Commission’s (SEC) potential approval of a spot Bitcoin exchange-traded fund (ETF), according to an analysis by trading firm QCP Capital.

Despite recent developments, Bitcoin’s price has displayed limited upside volatility.

The recent turmoil in the Bitcoin market was triggered by a hacker who falsely claimed on the SEC’s X (formerly Twitter) account that the first U.S. spot Bitcoin ETF had received official approval.

This incident was later revealed to be the result of a SIM swap attack, facilitated by the lack of two-factor authentication on the compromised account.

During this period of confusion and the subsequent correction by the SEC, the price of Bitcoin briefly approached $48,000 but failed to surpass that level.

QCP Capital interprets these events as a warning sign that even if the SEC grants official approval, it may not ignite the substantial rally that Bitcoin enthusiasts are anticipating.

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The trading firm stated that the initial response to the fake “approval” was subdued, with Bitcoin unable to break free from its resistance level.

There remains a glimmer of hope for investors, as the deadline for approving one ETF application, submitted by ARK Invest, falls on January 10th.

Historically, the SEC has approved all ETFs simultaneously, so an announcement may be imminent.

$48,000 has become a pivotal price level for Bitcoin traders, with many considering it to be a local peak.

The future direction of Bitcoin’s price remains a topic of debate, with some foreseeing continued sideways movement, while more pessimistic predictions anticipate a substantial correction to as low as $35,000 or even $12,000.

At the time of writing, BTC/USD was trading near $45,600 ahead of the Wall Street opening on January 10th.

As the crypto market eagerly awaits the SEC’s decision, the uncertainty surrounding Bitcoin’s immediate future prevails.

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Two U.S. Senators, J.D. Vance and Thom Tillis, have urged the United States Securities and Exchange Commission (SEC) to provide a comprehensive report to Congress regarding the security breach that occurred on January 9 involving the SEC’s X Twitter account.

In a letter addressed to SEC Chair Gary Gensler on the same day as the incident, the senators expressed their grave concerns about the breach and its implications for the SEC’s internal cybersecurity protocols.

The senators emphasized that the breach was not only a matter of cybersecurity but also ran contrary to the SEC’s fundamental mission, which includes safeguarding investors, ensuring fair and efficient markets, and promoting capital formation.

They were particularly troubled by the “widespread confusion” caused by the hack, which prompted their request for a detailed report from the SEC to Congress.

The letter set a deadline of January 23 for the SEC to submit the report, drawing attention to an existing mandate that compels businesses to disclose the impact of any cybersecurity incident within four days.

The senators specifically asked whether the SEC could provide Congress with a report within this mandated timeframe if the breach was indeed a result of a cybersecurity attack, seeking an explanation if such a deadline couldn’t be met.

The breach, which occurred on January 9, involved the SEC’s X Twitter account posting a false tweet claiming that spot Bitcoin exchange-traded funds (ETFs) had received approval in the United States.

READ MORE: SEC Chair Warns of Crypto Risks Amid Spot Bitcoin ETF Decision

The ensuing confusion in the cryptocurrency community was short-lived as Gensler later confirmed that the SEC’s X account had been compromised and the tweet unauthorized.

Critics, including investors and market participants, criticized the SEC for its lack of preparedness against cyberattacks and online threats.

An internal investigation by X, formerly Twitter, revealed that the SEC account did not have two-factor authentication enabled at the time of the breach.

The report from X also indicated that the breach occurred because an unidentified individual gained control over a phone number linked to the @SECGov account through a third party.

Several other prominent government officials, including Senators Cynthia Lummis and Bill Hagerty, as well as Representative Ann Wagner, echoed the concerns of their congressional colleagues.

Hagerty demanded full transparency regarding the incident, while Lummis emphasized the risks associated with fraudulent announcements that can manipulate financial markets, calling for clarity on such incidents.

These collective concerns highlight the urgent need for a comprehensive report from the SEC to address the security breach and its broader implications.

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