Crypto experts question SEC impact on ETFs, citing inefficiency risks


Influential figures in finance and crypto are expressing concern on X (formerly Twitter) about the SEC’s potential effect on crypto exchange-traded funds (ETFs).

U.S. financial lawyer Scott Johnsson, venture capitalist Nic Carter, and BitMEX Exchange highlighted the possible consequences of SEC rules on in-kind creation/redemption for digital assets.

The excitement surrounding the approval of the Bitcoin Spot ETF has boosted market confidence, leading global investors to anticipate a substantial influx into the crypto market after approval. Many experts predict that the SEC could approve a Bitcoin Spot ETF as early as January.

Yet, concerns from market experts such as Scott Johnsson and Nic Carter have emerged regarding the impending Bitcoin Spot ETF, pointing to the SEC’s cautious approach. Financial lawyer Scott Johnsson highlighted a problem, emphasizing the SEC’s refusal to approve amendments permitting in-kind creation or redemption of digital assets.

He pointed out the SEC’s doubt regarding compliance, leading to reduced investor protection despite its mandate. This regulatory approach, he said, introduces a new but possibly less secure product, bringing in additional risks for investors.

Additionally, prominent crypto figure and venture capitalist Nic Carter echoed a similar view. He said that, in practical terms, the SEC’s position suggests that crypto ETFs will face decreased efficiency as the creation and redemption of shares become more expensive. While it is unclear if this will lead to tracking errors or higher expense ratios, the overall outcome is an elevated cost.

Related: Spot Bitcoin ETF inflows could dwarf all 163 crypto ETPs today.

Contributing to the discussion, crypto exchange BitMEX, co-founded by Arthur Hayes, expressed worries about the SEC’s influence on the basic operations of crypto ETFs. BitMEX highlighted the conventional mechanism where authorized participants (APs) play a crucial role in maintaining ETF efficiency through in-kind creations and redemptions.

Nevertheless, as the SEC leans toward cash transactions exclusively, BitMEX cautioned against the loss of essential advantages, restricting competition and diminishing the effectiveness of the ETF structure.

BlackRock, Grayscale, Bitwise, WisdomTree, Invesco, Galaxy, Fidelity, ARK Invest, Valkyrie, Franklin, Hashdex, Global X ETFs, and Pando Asset are all waiting for a decision by the SEC over their spot Bitcoin ETF applications.

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