The SEC Continues To Resist Crypto, But That Will – Must – Change

For a moment, it appeared that regulators were ready to acknowledge what many investors and financial institutions see as inevitable — the rise of cryptocurrency as a legitimate, mainstream investment vehicle. And we still may be in that moment.

Several financial powerhouses — among them Blackrock — have petitioned the Securities and Exchange Commission (SEC) to offer financial products centering on crypto. Blackrock filed a plan to offer the first spot ETF for Bitcoin, enabling investors to essentially trade the cryptocurrency based on its current value instead of just the futures trading on Bitcoin that the federal agency approved in 2021.

Not only did Blackrock file one plan, but after reports that the SEC saw the plan as "inadequate" and "not sufficiently clear and comprehensive," Blackrock this week refiled with a fresh plan. This shows determination and is a large part of the reason why some experts believe that the nature of the SEC's failure to approve the Blackrock plan is substantially different than previous rejections. There is now a belief that with some adjustments, the agency will eventually approve it.

The Time Has Come for New Regulated Digital Assets

This is at least the 30th crypto spot ETF plan the SEC has turned down, according to Bloomberg, and there are a growing number of voices, even within the agency itself, who say that the regulator is running out of excuses on such approvals. The fact that financial giants and long-established institutions like Blackrock and Fidelity are seeking approval for such plans is — must be — an indication that the time for crypto to go mainstream has arrived. The crypto genie is out of the bottle even among long-established institutional investors, and sooner or later regulators are going to have to acknowledge that.

The market certainly feels the time has come. Bitcoin rose by at least 12% in June, topping $30,000 for the first time in a long time before falling in light of the pending SEC decision. But the applications keep coming; according to Bloomberg, at least three other issuers have filed similar ETF plans since BlackRock's filing.

Analysts initially believed that Blackrock had a "good chance" of getting the offering approved by the SEC, especially given its nearly flawless record for ETF approvals (575 approved, one rejected). According to the analysts, Blackrock's plan addressed most of the issues that the agency had raised in dozens of previous applications by other firms offering plans for spot crypto trading that were rejected, such as the speculative and potentially manipulative aspect of some crypto trading platforms. Among other things, the Blackrock plan puts the NASDAQ in charge of ensuring transparency in trading.

Respecting Crypto's Unique Aspects – and its Money-Making Potential

SEC regulators are, of course, concerned with investor safety, and experience has shown that an unregulated crypto market could lead to investor tragedy. But at the same time, regulators need to respect the unique aspects of crypto, including its independent, digital nature, which is what attracts people to use it. Regulating crypto into a kind of "digital dollar" isn't going to help anyone or advance financial innovation.

The surging interest in crypto by traditional finance institutions and markets could unleash a huge boom in crypto investing, estimated by some to be worth as much as $15 trillion, making crypto trading a potentially huge engine for economic growth. An ETF offering would "convert" crypto from a suspect, outlier method of moving money under the radar into a "legitimate" asset. But for that to happen, crypto needs to retain its ethos of being a purely digital method of exchange, unencumbered by unnecessary regulations.

Opening the Door for Crypto Growth and Financial Innovation

Once that happens, other features of cryptocurrency — such as the ability to settle both domestic and international accounts without the hassle of exchange rates, bank transfers and burdensome regulatory paperwork — will become manifest. This is not about skirting taxes or money laundering; you can be sure that crypto assets transferred from accounts at Blackrock will be vetted as thoroughly as dollar transfers.

But for those doing business online or internationally, as well as those seeking an asset that is more resistant to inflation, crypto is likely to be more than an asset investment. And as more people get used to investing in crypto, they will be more likely to use crypto, thus fulfilling the original promise of cryptocurrency as a pure, digital method for settling debts, buying and selling and transferring assets in a safe, efficient manner. And as more people take advantage of cryptocurrency, more advanced tools — based on artificial intelligence and other advanced technologies — will be developed, enabling users to get the most out of their investments.

But that's in the future. The immediate issue is SEC approval of spot crypto trading and the market demand for it. Blackrock, Fidelity and the others seeking to trade these assets aren't interested in the ethos of cryptocurrency; they're interested in making money, and they've determined that there is a lot of money to be made by providing services for crypto trading.

This acknowledgment by some of the financial sector's largest and most-established players of the potential of crypto is exactly the reason it is not going away. With the proper supervision against market manipulation, there's no reason crypto should not take its place among other traded assets. And when it does, the benefits of crypto could, for the first time, become clear to all investors.

By Dmitry Gooshchin, COO and Co-founder of Endotech.io.

(Opinions expressed in this article are the author's own.)