Author: SEC Chairman Gensler

On January 11th, according to Reuters, the U.S. Securities and Exchange Commission (SEC) documents show that the SEC has approved 11 spot Bitcoin ETFs, including VanEck, Bitwise, Fidelity, Franklin, Valkyrie, Hashdex, Ark Invest, Grayscale, BlackRock, WisdomTree, and Invesco Galaxy.

Gary Gensler, Chairman of the U.S. Securities and Exchange Commission (SEC), released a statement on the SEC website regarding the approval of Bitcoin spot ETFs. The approval was largely due to a ruling by the District of Columbia Circuit Court of Appeals, which found that the Commission had failed to fully explain its reasoning for not approving the Grayscale ETF.

He stated: "While we have approved the listing and trading of certain spot Bitcoin ETP shares today, we have not approved or endorsed Bitcoin."

Investors should exercise caution with the numerous risks associated with products related to Bitcoin and its value and cryptocurrency.

Full Text Below:

Today, the Commission approved the listing and trading of multiple spot Bitcoin exchange-traded product (ETP) shares.

I often say that the Commission acts in accordance with the law and the courts' interpretation of the law. Since 2018, under Chairman Clayton's leadership and continuing through March 2023, the Commission did not approve more than 20 spot Bitcoin ETP exchange rule submissions. One of these was proposed by Grayscale, which planned to convert the Grayscale Bitcoin Trust into an ETP.

What we face now is a series of submissions similar to those we did not approve in the past. However, the circumstances have changed. The District of Columbia Circuit Court of Appeals ruled that the Commission had failed to fully explain its reasoning for not approving the Grayscale proposed ETP for listing and trading (Grayscale decision[1]). As a result, the court vacated the Grayscale decision and remanded the matter to the Commission. Based on these circumstances and the more detailed discussion in the approval order, I believe the most sustainable path forward is to approve the listing and trading of these spot Bitcoin ETP shares.

The Commission evaluates any rule submission by a national securities exchange to determine whether it is consistent with the Securities Exchange Act and related regulations, including whether it is designed to protect investors and the public interest. The Commission is neutral and does not hold views on specific companies, investments, or the underlying assets of ETPs. If an issuer and exchange meet the requirements of the securities laws, the issuer must have the same right to access our regulated markets as anyone else.

It is important to note that today's action is limited to ETPs holding a non-security commodity such as Bitcoin, and by no means does it indicate the Commission's willingness to approve listing standards for crypto asset securities. This approval also does not represent the Commission's view on the status of other crypto assets under federal securities laws or the current non-compliant status of certain participants in the crypto asset markets. As I have said in the past, and as a reminder, no judgment is made on any particular crypto asset, as the vast majority of crypto assets are investment contracts and are therefore subject to federal securities laws[2].

Today's investors already have the opportunity to purchase, sell, or otherwise acquire Bitcoin through many brokerage firms, mutual funds, national securities exchanges, peer-to-peer payment apps, non-compliant cryptocurrency trading platforms, and the Grayscale Bitcoin Trust. Today's action will provide some protection for investors:

First, sponsors of Bitcoin ETPs will be required to provide full, fair, and truthful disclosures about the products. Investors holding any listed and traded Bitcoin ETP will benefit from public registration statements and required periodic reports. While these disclosures are required, it is important to note that today's action does not represent an endorsement of the disclosed ETP arrangements (such as custody arrangements).

Second, these products will be listed and traded on registered national securities exchanges. Such regulated exchanges must have rules designed to prevent fraud and manipulation, and we will closely monitor them to ensure they enforce these rules. Additionally, the Commission will thoroughly investigate any fraud or manipulation in the securities markets, including manipulation schemes using social media platforms[3]. Such regulated exchanges also have rules designed to address certain conflicts of interest and protect investors and the public interest.

In addition, existing rules and conduct standards will apply to the purchase and sale of approved ETPs. For example, the "best interest" rule will apply when a broker recommends an ETP to a retail investor; investment advisers have fiduciary duties under the Investment Advisers Act. Today's action does not approve or endorse cryptocurrency trading platforms or intermediaries, which are largely non-compliant with federal securities laws and often have conflicts of interest.

Third, Commission staff are concurrently completing the review of 10 spot Bitcoin ETP registration statements, which will help create a fair competitive environment for issuers, benefiting investors and the broader market.

Since 2004, the agency has experience in regulating certain non-security commodity ETPs such as precious metals. This experience will be valuable for our oversight of spot Bitcoin ETP trading.

While we are neutral, I want to point out that the underlying assets of precious metal ETPs have consumer and industrial uses, whereas Bitcoin is primarily a speculative, highly volatile asset, and is also used for illicit activities, including ransomware[4], money laundering[5], evading sanctions[6], and terrorist financing[7].

While we have approved the listing and trading of certain spot Bitcoin ETP shares today, we have not approved or endorsed Bitcoin. Investors should exercise caution with the numerous risks associated with Bitcoin and its value and cryptocurrency[8].

References:

[1]See Grayscale Investments, LLC v. SEC, No. 22-1142, 82 F.4th 1239 (D.C. Cir. 2023).

[2]Courts have similarly found that certain crypto assets were offered and sold as investment contracts.See, e.g.,SEC v. Terraform Labs Pte. Ltd., No. 23-cv-1346, 2023 WL 8944860 (S.D.N.Y. Dec. 28, 2023);SEC v. Blockvest, LLC, No. 18-cv-2287, 2019 WL 625163, at *4-*9 (S.D. Cal. Feb. 14, 2019);SEC v. Nat. Diamonds Inv. Co., 19-cv-80633, 2019 WL 13277296, at *8-*10 (S.D. Fla. May 28, 2019);SEC v. Telegram Grp. Inc., 448 F. Supp. 3d 352, 368-79 (S.D.N.Y. 2020),appeal dismissed, No. 20-1076, 2020 WL 3467671 (2d Cir. May 22, 2020);SEC v. Kik Interactive Inc., 492 F. Supp. 3d 169, 177-80 (S.D.N.Y. 2020);SEC v. NAC Found., LLC, 512 F. Supp. 3d 988, 995-97 (N.D. Cal. 2021);SEC v. LBRY, Inc., 639 F. Supp. 3d 211, 216-21 (D.N.H. 2022),appeal dismissed, No. 23-1743 (1st Cir. Oct. 23, 2023);SEC v. Terraform Labs Pte. Ltd., No. 23-cv-1346, 2023 WL 4858299, at *10-*15 (S.D.N.Y. July 31, 2023).

[3] See SEC v. Constantin, No. 22 Civ. 4306 (S.D. Tex.).

[4] See U.S. Senate Committee on Homeland Securities & Government Affairs, “Use of Cryptocurrency in Ransomware Attacks, Available Data, and National Security Concerns” (May 24, 2022), available at https://www.hsgac.senate.gov/wp-content/uploads/imo/media/doc/HSGAC%20Majority%20Cryptocurrency%20Ransomware%20Report_Executive%20Summary.pdf.

[5] See Basel Institute on Governance, “Quick Guide 1: Cryptocurrencies and Money Laundering Investigations” (August 2023), available at https://baselgovernance.org/publications/quick-guide-1-cryptocurrencies-and-money-laundering-investigations. See also Chainalysis, “Crypto Money Laundering: Four Exchange Deposit Addresses Received Over $1 Billion in Illicit Funds in 2022” (Jan. 26, 2023), available at https://www.chainalysis.com/blog/crypto-money-laundering-2022/.

[6] See Center for Strategic & International Studies, “Cryptocurrencies and U.S. Sanctions Evasion: Implications for Russia” (Dec. 20, 2022), available at https://www.csis.org/analysis/cryptocurrencies-and-us-sanctions-evasion-implications-russia. See also UK Finance, “The Cyber-Crypto-Sanctions Nexus” (Feb. 4, 2020), available at https://www.ukfinance.org.uk/news-and-insight/blogs/cyber-crypto-sanctions-nexus.

[7] See Congressional Research Service, “Terrorist Financing: Hamas and Cryptocurrency Fundraising” (Nov. 27, 2023), available at https://crsreports.congress.gov/product/pdf/IF/IF12537; U.S. Department of the Treasury, “Following Terrorist Attack on Israel, Treasury Sanctions Hamas Operatives and Financial Facilitators” (Oct. 18, 2023), available at https://home.treasury.gov/news/press-releases/jy1816; The Rand Corporation, “Terrorist Use of Cryptocurrencies: Technical and Organizational Barriers and Future Threats” (2019), available at https://www.rand.org/pubs/research_reports/RR3026.html.

[8] See, e.g., Securities and Exchange Commission Office of Investor Education and Advocacy, “Exercise Caution with Crypto Asset Securities: Investor Alert” (March 23, 2023), available at https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/crypto-asset-securities.

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