But lobbyists face an uphill battle that has gotten even tougher after dramatic price swings in recent days, with Bitcoin plunging nearly 40 percent since early May. The investor risks are building on broader concerns about whether cryptocurrency fuels money laundering, aids tax evaders and could threaten the safety of the financial markets themselves if broadly adopted.
“Our country needs to take a deeper dive on how to deal with cryptocurrency before any regulations are put in,” Sen. Elizabeth Warren (D-Mass.), a member of the Banking Committee, said in an interview. “The wild swings of crypto prices sound an alarm that every regulator hears.”
The debate over Bitcoin exchange-traded funds, or ETFs, will be an important indicator of how far Washington is willing to let digital currency markets flourish amid growing questions about whether crypto serves any value to society or is just a speculative fad that carries real risks for investors.
Bitcoin is the biggest of the virtual assets, which unlike the dollar are distributed outside of government control and often operate on a decentralized basis. The pending proposals for Bitcoin ETFs would allow more investors to gain exposure to the digital currency without having to purchase it directly.
The funds would essentially replicate the prices of Bitcoin and other cryptocurrencies. Investors could buy shares of the funds and sidestep the need to have so-called digital wallets to hold the digital currency. The complications of handling and trading the virtual assets would be left to fund managers.
The SEC has long taken a skeptical view of the funds, going as far as rejecting earlier proposals by the Winklevoss twins — of Facebook fame — because of worries that the agency could not guarantee safeguards against fraud and manipulation.
In addition to pending fund proposals backed by Fidelity and Scaramucci’s SkyBridge, One River Digital Asset Management is being advised by former SEC Chair Jay Clayton as it pitches a “carbon neutral” Bitcoin ETF. Clayton led the agency in the Trump era and didn’t sign off on any of the cryptocurrency fund proposals during his tenure. While in office, Clayton highlighted concerns that cryptocurrency markets were ripe for fraud and manipulation and said that regulators had a host of issues to resolve before permitting ETFs.
The SEC, which is responsible for allowing the funds to launch, appears to be in no hurry to expand access to Bitcoin investments. The agency’s new chair, Gary Gensler, has emerged in recent weeks as a clear crypto skeptic. That surprised some advocates who were hoping he’d be more amenable to Bitcoin after teaching and researching digital finance at MIT.
Gensler has flagged fundamental concerns about the operations of the underlying cryptocurrency market that the ETFs want to track. He says exchanges that facilitate the buying and selling of digital currency aren’t adequately regulated and that market data is lacking.
“Altogether, this has led to substantially less investor protection than in our traditional securities markets, and to correspondingly greater opportunities for fraud and manipulation,” Gensler said in House testimony Wednesday.
Despite the growing industry enthusiasm, Wall Street is also split on the future of cryptocurrency. Some executives are dismissing the push to expand access even as their firms try to satisfy customer demand.
JPMorgan Chase CEO Jamie Dimon said in House testimony Thursday that his company — the nation’s largest bank — was debating how to make it available in a safe way. But Dimon’s personal advice? “Stay away from…