The US SEC wants to expand the definition of “exchanges” to bring crypto exchanges under its jurisdiction. If the change happens, Bloomberg analysts James Seyffart and Eric Balchunas believe it will “open the door” to Bitcoin ETFs mockery.
New note on why we think spot bitcoin ETFs will be approved in early summer 2023. The SEC is proposing to expand the definition of “exchange”, allowing crypto platforms under SEC reg. Then search (which can take a year) for ETFs to get the green light via @JSeyff pic.twitter.com/TtFgFXrJ8h
— Eric Balchunas (@EricBalchunas) March 24, 2022
The two analysts believe it will take at least a year for the first such ETF to get the green light once the definition is expanded. This puts the earliest possible launch date for a Bitcoin ETF sometime in the summer of 2023.
SEC Position on Bitcoin ETFs
The US securities watchdog has traditionally been averse to the idea of crypto ETFs due to the usual reasons surrounding volatility and investor protection. This is mainly because the platforms and companies that offer these products are not properly regulated.
The SEC has rejected every Bitcoin ETF application so far. Most recently, it rejected applications from NYDIG and Global X. It has also rejected multiple applications submitted by Wisdom Tree in the past 12 months. In the final rejection, the watchdog said:
“The Commission concludes that BZX has failed to comply with its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal complies with the requirements of Exchange Act Section 6(b)(5), in in particular, the requirement that the rules of a national stock exchange are “designed to prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest”.
However, if the SEC brings crypto exchanges into its regulatory framework, its argument against such ETFs will no longer hold, according to Seyffart.
The SEC’s proposal to “include significant treasury market platforms in the regulation of alternative trading platforms” does not specifically mention crypto exchanges, but it is broad enough to cover them, as well as most DeFi protocols.
If the proposal materializes, crypto exchanges will most likely be regulated in the same way as traditional exchanges. However, it is unclear at this stage how DeFi systems and businesses are regulated. It is also unclear whether they will be able to function as they have, without any regulatory nuance or restrictions.
The language of the proposal points out that cryptocurrencies and other virtual assets are classified as securities rather than payment systems, which is how other countries such as Ukraine deal with regulations.
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