When the price of BTC and ETH fell from all-time highs in 2022, the cryptocurrency market saw severe turmoil. These sharp declines forced numerous recognized companies into bankruptcy. Such insolvency included lending platform Celsius Network and cryptocurrency hedge fund Three Arrows Capital.
The crypto exchange FTX stood as the backbone of the industry while at its peak. Afterward, it collapsed in a matter of days in November. Therefore, such an occurrence ended an industry-wide crisis of confidence. Besides, the exchange’s demise revived financial regulators’ determination to crack down on cryptocurrency markets. It creates a problem for the world of crypto ETFs.
At this point, there is no need to purchase or hold digital assets directly. Crypto ETFs seek to expose retail investors to changes in their value. Regulators are, however, growing more concerned, and there is a reason for it. These investors require security from erratic prices and security issues.
John Reed Stark, a former director of the SEC of Internet Enforcement, expressed his opinion on the ongoing events. Currently, we are in the midst of a regulatory attack against cryptocurrency. It feels like there’s a new lawsuit against the industry every day. The SEC will do nothing, especially if investors are in danger. Similar to seatbelt legislation, investors occasionally require protection from themselves. However, they may not appreciate the rules.
Penalties for well-known cryptocurrency businesses
The SEC, the country’s top financial markets regulator, launched a wave of enforcement actions against well-known cryptocurrency businesses. Some of them include lender Genesis and exchanges Kraken and Gemini. Additionally, the commission is at odds with asset management Grayscale. On the other hand, Grayscale wants permission from the regulator to convert its Bitcoin trust into a spot ETF. That way, it will hold the Bitcoin directly.
Grayscale has long argued that there should be no distinction between spot and futures crypto ETFs. Besides, futures ETFs expose investors to the same crypto market as a spot crypto ETF would.
The asset management firm sued the SEC after the company rejected its request to convert its Bitcoin trust into an ETF. Despite the turbulent year for cryptocurrency assets, ETFs that provided exposure to them flourished throughout much of 2022. As well as investors pouring more than $240 million into six US bitcoin futures ETFs during the first 11 months of 2022. By the close of January, numerous crypto-based Exchange Traded Funds showed remarkable returns.
Among them was the Valkyrie Bitcoin Miners ETF, which boasted a 101% return for the month. In March, crypto Exchange-Traded Funds (ETFs) reported a one-week gain of approximately 30%. One of the most significant ones – ProShares Bitcoin Strategy ETF, delivered 36%.
The SEC shows a willingness to accept crypto futures ETFs. These funds follow futures contracts based on cryptocurrency prices. However, they sell the tokens on regulated futures exchanges. The SEC has consistently declined to approve ETFs that aim to hold cryptocurrencies, citing that allowing such ETFs would put investors in jeopardy of being exposed to market manipulation since cryptocurrency trading mainly happens on unregulated exchanges.
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