WSJ editorial slams SEC’s ‘bewildering’ Bitcoin ETF denials

The Wall Street Journal Editorial Board has come out swinging against Gary Gensler’s “legendary” resistance to approving a spot Bitcoin exchange-traded fund (ETF). 

The hard-hitting opinion piece, published on Wednesday, July 6 called out the Gensler-led Securities and Exchange Commission (SEC) for overt inconsistencies in how the commission handles applications for Bitcoin-related exchange-traded products (ETPs) compared to more traditional assets and other commodities.

So far, Gensler’s SEC has rejected every proposal for a spot Bitcoin ETP, including two in the last week from Grayscale and Bitwise, which resulted in Grayscale launching legal action against the SEC.

These consistent rejections led SEC Commissioner Hester Peirce to declare Gensler’s resistance to spot crypto ETPs as “becoming legendary”, as the commission has already approved several ETPs for Bitcoin futures, which come at much higher costs and include much greater risk for investors than the proposed spot ETPs.

Peirce also questioned why ETPs haven’t been approved in the United States despite the products having done so elsewhere.

“At what point, if any, does the increasing maturity of the Bitcoin spot markets and the success of similar products elsewhere tip the scale in favor of approval?”

The editorial board has also drawn attention to a two-pronged approach employed by Gensler which makes it practically impossible to get a spot Bitcoin product approved.

This includes requiring ETP sponsors to demonstrate that a significant amount of Bitcoin trading occurs on a regulated market, or that the underlying market must “possess a unique resistance to manipulation beyond the protections…of traditional markets.”

According to the WSJ, Gensler is “fully aware” that the first criteria simply cannot be met because almost all Bitcoin trading currently occurs on unregulated crypto exchanges.

The second criterion is also extremely difficult for sponsors to meet as the SEC has “arbitrarily established” a higher standard for spot Bitcoin ETPs without “explaining how to satisfy it.”

Related: The US Dept. of Commerce has 17 questions to help develop a crypto framework

Eric Balchunas, a senior ETF analyst at Bloomberg told his 107,000 Twitter followers that it was “nice to see” the WSJ echo similar thoughts to his ETF analyst colleague James Seyffart — claiming that Gensler is “holding innovation hostage” to take control of the crypto market.

Nice to see the @WSJ editorial board today echo @JSeyff’s note from April that Gensler is holding spot bitcoin ETFs (and innovation) hostage so he can get control of crypto market h/t @ToddRosenbluth pic.twitter.com/wUEr7AdnpU

— Eric Balchunas (@EricBalchunas) July 7, 2022

The piece comes one week after Grayscale launched legal action against the SEC for denying its application to launch a spot Bitcoin ETF — claiming that the SEC’s inconsistent rules concerning spot and futures Bitcoin ETPs contradict the law’s requirement that regulators apply “consistent treatment to similar investment vehicles.”