Bitcoin ETFs fueled hopes for other crypto ETFs - but don't get too excited

By Frances Yue

Welcome back to Distributed Ledger. This is Frances Yue, MarketWatch cryptocurrency and markets reporter.

The first approved bitcoin ETFs (BTCUSD) have been trading for two weeks, with BlackRock and Fidelity leading the race after the US Securities and Exchange Commission gave the green light to such products on January 10.

Some cryptocurrency investors now hope that ETFs based on smaller cryptocurrencies, such as ether (ETHUSD), will also receive SEC approval in the future.

However, it may be too early to get excited, according to Stephanie Breslow, partner and co-head of the investment management group at law firm Schulte Roth & Zabel.

Find me on X at @FrancesYue_ to share any cryptocurrency or newsletter ideas.

The debate about values

"Bitcoin itself is not a security. No one could even identify an issuer," Breslow told Distributed Ledger.

"But for other cryptocurrencies, there is still a dispute in many cases between the SEC and other market participants over which cryptocurrencies are securities and whether cryptocurrencies that were once securities are still securities," he said.

SEC Chairman Gary Gensler once said that bitcoin was the only cryptocurrency he was willing to publicly label as a commodity, rather than a security.

In June, the SEC separately sued crypto exchanges Coinbase and Binance. While the lawsuits contain different allegations, both maintain that the companies operated unregistered stock exchanges. Both lawsuits are still ongoing.

In July, US District Judge Analisa Torres ruled that Ripple Labs' XRP crypto token (XRPUSD) is not a security when sold on digital asset exchanges to the general public, but that Ripple's sales to Sophisticated institutional investors called it an unregistered sale of investment contracts, in violation of federal law.

In October, the same judge refused to allow the SEC to appeal the decision.

According to Breslow, it is important to observe the evolution and decisions of these types of lawsuits. “Those court cases themselves don't directly address whether you could have an ETF, but I do think that finding the lines between what is and what isn't a security will be relevant to determining which crypto will end up being able to be included in ETFs. "Breslow said.

"If the SEC thinks that a certain cryptocurrency is a security and that various exchanges should not trade it [and] "It shouldn't be open to US markets, so they probably wouldn't allow an ETF around that crypto," he added.

Still, even if a cryptocurrency is not considered a security, the question remains whether the market for it is large and rational enough, according to Breslow.

"In the case of bitcoin, it's widely traded. Something that's less traded wouldn't really support an ETF," he said.

Trump's stance on cryptocurrencies

As former US President Donald Trump moves toward the Republican Party nomination for the 2024 presidential election, some cryptocurrency supporters are putting their faith in a possible second Trump administration.

However, a careful look at Trump's tenure could cast doubt on those hopes, writes MarketWatch's Chris Matthews.

"Bitcoin, it seems like a scam," Trump told Fox Business in 2021. "I don't like it because it's another currency that competes against the dollar."

In 2019, amid controversy over Facebook's Libra cryptocurrency project, Trump lamented that the value of cryptocurrencies is "based on air."

Bitcoin ETFs fueled hopes for other crypto ETFs – but don’t get too excited

Comments

Leave a Reply Cancel reply