Bitcoin ETF approvals are still no slam dunk
Bitcoiners might be excited, but Grayscale's proposal to turn its bitcoin trust into an ETF still needs a green light from the SEC — and that is no sure thing.
Zoom out: SEC chair Gary Gensler could still find a second reason to deny the proposal, after choosing not to appeal a court ruling striking down his first one. And if political calculus enters into his decision, that might be his most logical move.
State of play: Gensler has spent much of his tenure atop the SEC unleashing enforcement against cryptocurrency in the U.S. that critics say stifles the industry.
- His hard stance has drawn the ire of Republicans. And it's aligned him closely with Democrat Elizabeth Warren of Massachusetts, who's leading the anti-crypto charge in the Senate.
The intrigue: Gensler's SEC term runs through 2026. But speculation has already emerged about what's next for the former Goldman Sachs partner and Obama-appointed CFTC chair, now 66.
- His name popped up a year ago as a potential Treasury secretary when rumors about Janet Yellen's future swirled.
- But he's also the appointee of a president who is looking vulnerable going into re-election. A Senate run of his own has been speculated on in crypto circles.
💭 Brady's thought bubble: To that end, the SEC chair could have political incentive to finish his role looking strong. That doesn't mean he needs to be successful. He'd just need to leave standing his ground.
- So far, though, his offensives against digital currencies have been marked by loss after loss.
Which brings us to Grayscale. For Gensler, a second ETF rejection now is a shot at an honorable-looking departure in the event that Biden loses, at least in the eyes of some. An approval could be spun as a straight-up declaration of surrender.
But, but, but: There is reason to believe from his own words that Gensler may be backing off from a renewed fight, says Jeremy Senderowicz, a lawyer at Vedder Price's investment services practice in New York.
- When asked before a Senate Banking Committee hearing in September about general spot-bitcoin ETF approval, the chairman said, "I'm looking forward to the [SEC] staff's recommendation" (he said basically the same thing again this week).
- Senderowicz says Gensler used a similar phrase in the summer of 2021, shortly before bitcoin futures ETFs were approved.
Of note: Gensler has not commented publicly on his future.
- SEC staff declined to comment on the chair's plans, and on its recommendation for Grayscale or any of the other ETFs, all of which have a January deadline for approval with the regulator.
The other side: Further opposition from Gensler on spot bitcoin ETFs — if he mounts any — may have nothing to do with politics at all. It could be based on a belief that cryptocurrency is rife for fraud or manipulation. And maybe he'll stop at nothing to protect investors and the financial system from their risks.
The bottom line: Either motivation would spell bad news for Grayscale and the others.
Crystal Kim contributed reporting.