US Congressmen Darren Soto and Tom Emmer sent a letter to the SEC chairman on Wednesday calling for a spot Bitcoin exchange-traded funds (ETFs) approval.
The bipartisan letter addressed to Gary Gensler, the Securities and Exchange Commission (SEC) chair, raises valid questions about the SEC’s crypto regulation approach. Terming the approach as unacceptable, Emmer questions why the SEC has allowed trading on Bitcoin futures ETFs but not on the spot Bitcoin-based ETFs.
The letter argues that, by definition, Bitcoin Futures are a derivative of the underlying Bitcoin spot market. The spot and futures Bitcoin markets are also intertwined and have similar risk profiles regarding manipulation and fraud.
Therefore, since there are no concerns about Bitcoin futures ETFs from the SEC, there shouldn’t be any concerns about Bitcoin spot ETFs. The congressmen call on the SEC to show similar willingness and be equally or more comfortable authorizing Bitcoin spot ETFs.
The issue
In October, the SEC authorized trading for two Bitcoin futures ETFs, exposing investors to CME traded Bitcoin futures. According to the letter, these products have much more volatility potential compared to a Bitcoin spot ETF.
Additionally, they expose investors to substantially higher fees because of their trading premium and the monthly costs of rolling futures contracts. The lawmakers further argue that denying spot-based ETFs while simultaneously permitting futures-based ETFs goes against the core mission of the SEC to protect investors.
Benefits of spot Bitcoin ETFs
Bitcoin spot ETFs are based directly on assets, and this characteristic provides investors with more protection. Investors also strongly prefer spot-based EFTs, thanks to their efficiency and commercial success.
In an example, the letter compares a large commodity-based ETF that has been trading for 15 years in the US public market. It has not experienced any material issues in investor protection in all that time, and it holds billions in assets compared to futures-based options.
Various spot Bitcoin investment vehicles have also emerged, and they’ve amassed over $40 billion in assets from hundreds of thousands of investors across the US. However, since the SEC hasn’t registered these products as ETFs, they publicly trade at values not equivalent to net asset values, which is not in the best interest of investors.
The letter emphasizes that investors deserve consistency and choice over the products they consider suitable for them and their investment objectives. Clear regulations are necessary to enable the maximization of the potential benefits of cryptocurrencies while mitigating risks.
