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Bitcoin funds are reaching the masses. Why crypto critics say it’s dangerous

 


The move sparks rare tensions between investor advocates and SEC Chairman Gary Gensler, who has long been hailed by consumer groups and progressive lawmakers as a tough regulator ready to challenge the financial sector. The same groups are now warning that it is dangerous to give individual investors a greater capacity to mine cryptocurrency due to its lack of regulation. Gensler himself has described the underlying market as the Wild West, rife with fraud and abuse. It is also subject to intense volatility, with the price of Bitcoin rising 440% from a year ago.

“Bitcoin and other cryptocurrencies have already sucked insane amounts of money from the real economy,” said Bart Naylor, financial policy advocate with consumer group Public Citizen. “Allowing more games under the SEC banner lowers what is supposed to be the gold standard for oversight of global securities markets.”

The SEC declined to comment on the fate of the fundraising requests and the looming criticism.

“We need to see where the SEC stands on this,” said Phillip Basil, director of banking policy for Better Markets, which calls for tighter control of the financial sector. “But were concerned that the simple act of layering a complex new product on an insufficiently regulated underlying asset would raise a host of investor protection and market stability issues.”

The price of Bitcoin has skyrocketed in recent days as anticipation for approval spread among crypto traders. Bitcoin hit its highest level in months, trading above $ 62,000 on Monday.

The proposed investment vehicles would not be made up directly of Bitcoin but instead would be linked to the financial derivative Bitcoin futures market which represents speculative bets on the price of digital currency.

It comes as the SEC has refrained from approving investment funds backed by Bitcoin itself, which is only lightly regulated by federal officials. While Gensler warned crypto markets are lacking adequate investor protections, another agency, the Commodity Futures Trading Commission, has been monitoring Bitcoin derivatives since 2017.

Traders are considering three Bitcoin futures ETFs that will likely go live this month. A fund launched by ETF provider ProShares was due to start trading on the New York Stock Exchange on Tuesday.

The companies offering the funds do not need an upward or downward vote from the SEC as they are covered by the Investment Company Act of 1940. The agency can step in to stop an application, but if it chooses not to. to do so, the fund may move forward over a defined review period, typically 75 days.

Gensler has hinted in recent months that the agency would be willing to allow the funds to be traded. Although it stopped before an explicit approval, it sparked a wave of nominations.

“When combined with other federal securities laws, Bill 40 provides important protections for investors,” Gensler said in a speech in August. “Given these important protections, I look forward to staff review of these deposits, especially if they are limited to those Bitcoin futures contracts traded by CME.” (CME Group is a stock exchange operator that offers Bitcoin futures transactions.)

The Gensler-led CFTC under the Obama administration authorized the launch of Bitcoin futures contracts in late 2017 under former President J. Christopher Giancarlo. At the time, Giancarlo said the futures exchanges that wanted to offer the products had agreed to take over consumer protection, but he also warned that the underlying crypto market was largely unregulated.

Giancarlo said in an interview on Monday that the launch of funds based on Bitcoin futures rather than Bitcoin itself suggested “lingering hesitation” to the SEC over the stability and health of the virtual currency market.

Certainly, the SEC should continue to fight crypto exchanges and digital currency products, despite its comfort with Bitcoin futures. Gensler warned that investors are not getting enough information about how the market works. He calls on Congress to give regulators more power to control digital asset trading, lending and decentralized finance platforms.

But critics argue that the SEC nonetheless puts investors at risk, even if it protects them from funds that would hold Bitcoin itself.

“There are huge questions of integrity, stability and manipulation in the underlying market,” said Tyler Gellasch, a former SEC official who is executive director of investor advocacy group Healthy Markets. a fragile foundation is a good idea. “

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2/ https://www.politico.com/news/2021/10/19/sec-bitcoin-funds-crypto-516218

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