SEC Approves Bitcoin ETFs But Cautions on Crypto Risks

The Securities and Exchange Commission has finally cleared the way for spot bitcoin exchange-traded funds (ETFs), prompting expectations for billions in new inflows. However, SEC Chair, Gary Gensler, attempted to temper enthusiasm by warning of cryptocurrency’s risks even as the ETFs were approved.

In approving the listing and trading of spot bitcoin ETFs, the SEC stressed that it was not endorsing bitcoin itself. Gensler referred to bitcoin as “primarily a speculative, volatile asset” in his statement. He advised investors to “remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.”

Bitcoin’s volatility supports Gensler’s warnings. After surging to nearly $69,000 in November 2021, bitcoin prices plunged over 60% to around $26,000 by the end of 2022. Other major cryptocurrencies, like Ethereum, recorded even steeper declines last year. High volatility and the crypto market’s history of boom-and-bust cycles validate the SEC’s call for caution.

While approving the ETFs as sound financial products, the SEC made clear its ongoing concerns about investor protection in the loosely regulated crypto asset market. The ETF approvals do not erase these concerns. For now, the SEC seems to be taking a middle ground – accepting crypto-based ETFs while continuing to warn of crypto speculation risks.

John Zoraian John Zoraian is a Principal in Grassi’s Financial Services practice, where he provides expert fund administration, compliance and advisory services to hedge and private equity funds, funds of funds, master-feeders, investment advisors, broker-dealers, family offices, fintech entities and more. John draws from more than 35 years of experience in the hedge fund business. Prior to joining Grassi, he established S&Z Fund Services, a division... Read full bio

Categories: Advisory