Gensler Weighs In On Bitcoin ETF Applications, Criticizes Non-compliance In Crypto Industry

Gary Gensler, the current chairman of the U.S. Securities and Exchange Commission (SEC), has finally spoken about the wave of traditional financial institutions' interest in cryptocurrency, specifically the Wall Street giants' spot Bitcoin exchange-traded fund (ETF) applications submitted to the commission. This comes after Gensler expressed his disappointment in the court ruling on the Ripple Labs' case just a few days ago.

Gensler has gained prominence in the cryptocurrency industry this year due to the SEC's regulatory enforcement actions that had significant impacts on the crypto market.

Now, the spotlight is once again on the SEC chairman regarding the spot Bitcoin ETF applications filed by prominent players in the U.S. and global markets. The SEC, including Gensler, had remained silent on the matter from the initial filing until the official receipt of those applications.

In a recent interview, the crypto industry eagerly awaited Gensler's response to questions about the perceived "tone shift" in the industry and whether recent filings indicate any change in the SEC's stance. However, Gensler disappointed the industry by saying, "Those filings do ultimately come up to a five-member commission so I can't prejudge any filing."

When the topic turned to the broader cryptocurrency industry, Gensler did not hold back and criticized it for non-compliance and the lack of adherence to securities laws, particularly with regard to trading platforms.

"As I said this is a field that there's a lot of non-compliance in this field and that the platforms themselves where trading is occurring in various crypto tokens," the SEC chairman said.

"Though some of it comes under the Securities laws, currently they're not necessarily compliant with those time-tested protections against fraud and manipulation," the SEC chairman further said.

Meanwhile, all spot Bitcoin ETF applicants have re-filed their applications to the SEC and all named Coinbase as their market surveillance partner.

However, the commission filed a lawsuit against Coinbase in June over securities law violations.

Jai Waterman, CEO of Blockstation, a decentralized trading ecosystem provider, believes that naming Coinbaseas the spot Bitcoin ETF applicants' market surveillance partner was a "tactical move."

"The curveball is the timely support offered by CBOE and BlackRock, who have come forward to back Coinbase as a surveillance partner for the ETF. These filings appear to be a very tactical move, seemingly orchestrated by Coinbase putting the SEC in a seemingly compromising position, (which) is a smart move," the executive told International Business Times.

"This unexpected development adds a new dynamic to the landscape and could potentially influence the outcome of the regulatory proceedings surrounding Coinbase. Or maybe this is the resounding voice of institutions who are saying enough is enough by applying pressure on the SEC to find Coinbase innocent. Maybe it's neither, but timing," he added.

Waterman also highlighted two possible scenarios regarding the role of Coinbase in the Bitcoin ETF applications.

"It might put pressure on the SEC to revise its stance toward Coinbase, but it won't change their perception of assets that look and trade like securities. Crypto assets that resemble securities will be treated as such, and the SEC will continue to take enforcement action against organizations that bypass securities rules, such as failing to provide appropriate public disclosures in the case of a public offering," he told IBT.

He noted that these Bitcoin ETF applications demonstrate how large institutions can offer different assets as securities with a compliant structure, legitimizing Bitcoin and cryptocurrency as investments within existing regulations.

"These large institutions are showing the market how you can potentially offer different types of assets offered to the public as securities, with a compliant structure. Applicants like Black Rock are following the rules and making sure the ETFs are registered, as a security should be. They are demonstrating the correct way of giving the public access to trade bitcoin through large financial institutions, which is currently not available," Waterman said.

The applications are "putting a spotlight on bitcoin and cryptocurrency as a legitimate investment and they are utilizing existing regulations in order to give access to an asset, which may not be easily defined by the existing framework," he added.

However, Waterman also cautioned that naming Coinbase as the surveillance partner could backfire, as the SEC's lawsuit against Coinbase might lead to the rejection of the ETF application.

"Blackrock and other trusted institutions naming Coinbase as their surveillance partner can pose a risk because the ETF application can be rejected, due to the current SEC lawsuit against Coinbase."

Regarding the Ripple Labs case, Gensler expressed satisfaction with the decision's recognition of the importance of protecting institutional investors but said they are still assessing the opinion as it pertains to retail investors. He emphasized the SEC's commitment to bringing firms into compliance without prejudgment and protecting the investing public.

"We're pleased from that decision recognizing the importance of protecting investors on the institutional investors," the SEC chairman said on July 17 at a National Press Club luncheon where he discussed artificial intelligence (AI), before adding, "While disappointed in what they said about retail investors, we're still looking at it and assessing that opinion."

Gensler also told those in attendance that the SEC will keep on trying "to bring firms that may not be into compliance without prejudging any one of them and trying to ensure that we protect the investing public."