Representatives Tom Emmer and Darren Soto sent a letter today to SEC chairman Gary Gensler.
“Why don’t we have a Bitcoin ETF?”
The letter was about an important question for almost every crypto investor. Their question was as follows: “Why don’t we have a Bitcoin spot ETF?” The congressmen wrote the following about this:
“We wonder why, if you do allow trading of an ETF based on derivative contracts, you wouldn’t allow trading ETFs based on spot Bitcoin as easily or more easily. Bitcoin spot ETFs are based directly on the asset, which inherently offers more protection for investors.”
ETFs are investment products that track the price of an asset or asset. Retail investors can include ETFs in their retirement and savings portfolios to gain price exposure to various stocks and bonds. A Bitcoin ETF would allow people who do not want to buy and store Bitcoin themselves to participate in the promotion; instead of buying BTC on a cryptocurrency exchange, they could buy and trade it on a stock exchange.
But Bitcoin futures ETFs are not. They track the price of investment contracts that speculate on the upcoming price of Bitcoin (BTC). All in all, a more complicated undertaking for the average American. In addition, this can be more volatile and expensive according to Emmer and Soto.
Change in SEC attitude
Nevertheless, the SEC, which has been rejecting applications for a Bitcoin ETF for years, stepped aside last month to allow trading of Bitcoin futures ETFs. Gensler had indicated in August that he hoped for such requests. These would fall under the Investment Company Act of 1940. Gensler claimed in the August speech that sparked the frenzied rush of crypto futures ETF applications:
“Combined with other federal securities laws, the ’40 Act provides significant investor protection.”
Ostensibly, that decision was made due to the possibility of Bitcoin spot prices being manipulated or vulnerable to fraud. But Emmer and Soto point out that any fraud or manipulation in spot markets would necessarily bleed through Bitcoin derivatives. According to the representatives, “90.47% of the price formation of the CME CF Bitcoin Reference Rate (BRR), which is the price index used by CME futures-based ETFs, consists of the spot Bitcoin exchanges: Coinbase, Kraken, and Bitstamp.” If the spot markets are rotten, so will the derivatives markets, they suggest.
The congressmen insist that they are not taking sides – they just don’t believe Gensler’s argument that derivatives are safer. They conclude that “unless there are clear and demonstrable benefits for investor protection, investors should have a choice of which product is most suitable for them and their investment objectives”.