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The SEC approves bitcoin … or does it?

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Everyone got very excited last week about the SEC (Securities and Exchange Commission, USA) approved the use of bitcoin on ETFs (Exchange Traded Funds). Fantastic … but what does it all mean? Does it mean the SEC approves of bitcoin trading? Does it mean the Federal Reserve and USGov endorse cryptocurrencies? Some would say yes, some would say no. So, let’s look at the key headlines.

First, an ETF is a fund, it’s not an asset. Therefore, if you invest in an ETF that has bitcoin as part of its asset classes, you get a part of that asset class but not the asset itself. Putting it plainly, you are investing in a fund and not in bitcoins.

Second, the SEC has limited its approval of the use of bitcoin as an asset class owned by an ETF to just 11 funds. And it’s worth noting which funds, as they’re not just any of companies but names like BlackRock, Fidelity and Invesco, whilst some issuers me like Bitwise and VanEck, have already released ads touting bitcoin as an investment.

The key thing to remember here however is that this is not a blanket approval of bitcoin or cryptocurrency investments. The SEC made clear that they are still deeply sceptical about cryptocurrencies and that the decision did not mean it approves or endorses bitcoin.

“Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto,” said Gary Gensler, the SEC’s chairman, reported The Guardian.

“I am concerned that these products will flood the markets and land squarely in the retirement accounts of US households who can least afford to lose their savings to the fraud and manipulation that appears prevalent in the spot bitcoin markets,” Commissioner Caroline Crenshaw said in her dissent.

Nevertheless, for those who are fans of DeFi and bitcoin, it’s a bit of a game-changer as yes, it does bring regulatory credibility. As Reuters reports, these ETFs allow investors exposure to the world's largest cryptocurrency without directly holding it. They provide a major boost for a crypto industry beset by scandals.

This will increase bitcoin values, with inflows estimated to be upwards of $55 billion over the next five years.

Taking all of this into account, it is a small step for decentralization of finance towards credibility, but there’s still a long way to go. The idea of a totally decentralized currency is still a way away and the SEC decision demonstrates this. The DeFi community want the endorsement of the likes of the BlackRocks and SEC to gain credibility. In other words, they want regulatory approvals to bring in the mainstream community. That’s why this is a big step forward and backward.

If we are to truly achieve a censorship resistant, decentralized currency, we need one regulated by the people and not by the SEC. Surely, that is the dream? And surely, it is a ridiculous dream?

Without regulatory approval, cryptocurrencies appear to be a Wild West; with regulatory approval, it is Statist and mainstream. Interesting dilemma.

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Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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