Dissenting SEC commissioner says agency approved spot Bitcoin ETPs, not ETFs

Members of the U.S. Securities and Exchange Commission (SEC) commented on the approval of various spot Bitcoin products on Jan. 10.

One commissioner, Caroline A. Crenshaw, expressed dissent by raising concerns about fraud and market manipulation as well as broader concerns about Bitcoin. Most notably, she contested the nature of the recent approvals, stating:

“I am concerned that there will be confusion about what exactly these products are – (they are not ETFs [exchange-traded funds] registered under the Investment Company Act of 1940, the ubiquitous products that today are used by millions saving for retirement) – and that investors may infer protections that do not in fact exist.”

Crenshaw explained in a footnote that the new products are instead exchange traded products (ETPs) under the Securities Act of 1933.

Other SEC members referred to the products in a similar way. Commissioners Hester Peirce and Mark Uyeda, both of whom agreed with the approvals, also referred to the products as ETPs in their statements. SEC chair Gary Gensler — who notably voted in favor of the latest approvals despite his critical stance — likewise referred to the approvals as ETPs in his own statement.

Unlike Crenshaw, none of those other SEC members elaborated on the difference between the two types of investment vehicle.

SEC approval order mentions ETFs

Elsewhere, the SEC order that granted approval to the relevant products names several offerings with “ETF” in the name, including those from Bitwise, Hashdex, Ark Invest, Invesco Galaxy, and Franklin Templeton. However, the order describes the products as spot Bitcoin ETPs in general throughout its text.

The two terms are not always exclusive. The Financial Industry Regulatory Authority (Finra), a company that serves as an independent regulator for U.S. securities firms, states that that ETFs are considered a particular type of ETP and notes that there is “no single definition of an exchange-traded product.”

It remains to be seen whether the implications for investor safety extend to the asset managers behind each product. Specifically, it is unclear whether those firms must make the distinction clear in their public communications.

Grayscale, notably, referred to its offering as an ETF in a recent press release. Coinbase, which is involved in custodial and surveillance-sharing roles in various offerings, also referred to the latest batch of approvals as ETFs in a blog post.