The well-renowned commissioner of the regulatory body U.S. Securities and Exchange Commission (SEC), Hester Peirce, has asked for a less strict approach towards the innovation in the crypto-linked exchange-traded fund (ETF) space. No crypto-linked ETF has been approved by the SEC yet and the commissioner is now again asking for a softer approach towards handling this issue reportedly.
In the past, Hester was also seen showing her dissent when SEC rejected the crypto-linked ETF proposal put forward by the Winklevoss twins. She had stated that:
By precluding approval of cryptocurrency-based ETPs for the foreseeable future, the Commission is engaging in merit regulation. Bitcoin is a new phenomenon, and its long-term viability is uncertain. It may succeed; it may fail. The Commission, however, is not well positioned to assess the likelihood of either outcome, for bitcoin or any other asset.
Overall, this stance by an SEC commissioner herself is seen as welcoming by the staunch proponents of the crypto space. This highlights that moving forward, the chances of a crypto-ETF getting established get more and more brighter.
Up until now, requests for the approval of an ETF in the crypto space have not been approved by the regulatory body SEC. The major reasons behind the lack of approval include issues like price volatility, price manipulation, lack of regulation, the prevalence of fraudulent activities etc.
The major role of the SEC is to establish a secure and safe ecosystem for institutional investors in this space. With the kind of uncertainty and volatility attached to the crypto space, it has been unnatural to approve an ETF for the regulator. The space of cryptocurrency is also pretty new as it is just a decade old, it is difficult for conventional finance gurus to accept it as it is. Crypto is also poised against the banking system of the world and in order to overthrow a system that has taken centuries to evolve, the road is not easy.
The need for an ETF arises from the fact that institutional investors have largely stayed away from cryptos owing to the lack of official regulation and services like exchange-traded funds. Due to this, a huge amount of investment money has been sitting on the sidelines instead of flowing in. If this investment money flows in, it is expected that it will bring a huge amount of capital in the crypto space which in turn might even take prices of bitcoin and other cryptos to new highs. This is from where the need for an ETF arises.
From the developments that are being made in both the technological and legislative fronts, the road for an ETF is getting more and more clear. The bitcoin has recently seen a strong rally in its price which is establishing an overall positive aura in the crypto space.
Although the initial use-case was driven largely by the negative usage of cryptos in activities like money laundering, usage in the dark web, etc., it seems that the tide is now turning in the positive direction with even an SEC commissioner reviewing the regulatory body’s role in checking the innovation in this space.
An ETF is expected to have a significant impact on crypto and while previously talking to BlockPublisher, an equity derivatives expert, Anna Yen, had previously highlighted the effects of a crypto-linked ETF on the crypto world stating:
“Having a crypto linked ETF would bring institutional legitimacy and liquidity. Exchange traded funds need to be approved by the SEC, and so far the SEC has been hesitant due to rampant price manipulation. Approval would mean that this hurdle was addressed, encouraging institutional players like banks to create markets and get involved in the market. Larger institutional investors need increased liquidity in the crypto markets to be able to trade meaningfully. As more institutional players jump in, more retail (individuals) would likely follow suit. Overall it would be a boon for market activity in cryptocurrencies.”