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In a recent congressional hearing, Gary Gensler, the chair of the U.S. Securities and Exchange Commission (SEC), emphasized his critical stance on the crypto industry. He raised concerns about how crypto companies handle customer assets, highlighting the dangers of commingling assets which, in his view, have historically not yielded positive outcomes.
One significant point of contention was the fate of spot bitcoin ETFs following a recent legal setback. A judge directed the SEC to reconsider its position on bitcoin ETF applications, stating that the previous rejection, particularly in the Grayscale Investments case, had been "arbitrary and capricious." Gensler, however, did not disclose the SEC's future plans or timeline regarding these applications. He further stated that it's still under "active consideration".
The hearing also delved into criticisms of the SEC's policies, notably focusing on the Staff Accounting Bulletin (SAB) 121 released in March 2022. This bulletin addressed the accounting and disclosure of crypto assets held by public companies. Representative Mike Flood questioned the lack of consultation with prudential regulators and the absence of specific SEC rules on digital asset custody at the time of the bulletin's issuance.
The hearing showcased a split, with Republicans criticizing the SEC's approach to digital assets, citing its alleged negative impact on consumers and small businesses. Amidst these debates, Gensler highlighted the need for congressional action to address challenges related to commingled assets in the crypto space.
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Meanwhile, the SEC has initiated the review of applications for spot crypto ETFs from Franklin Templeton and Hashdex. Franklin Templeton applied for a Bitcoin spot ETF, while Hashdex applied for a spot ether ETF. The SEC has a maximum of 240 days from the date of filing to approve or deny an ETF. This sets the potential decision date for these proposed funds in late May 2024.
The Commission often uses the entire 240-day period, requesting additional public feedback, which can delay the final decision. Notably, the SEC has recently delayed decisions on ETF applications from VanEck and ARK for ether ETFs. The extensions come amidst expectations of a potential federal government shutdown, prompting the SEC to adjust its decision deadlines for spot bitcoin ETF applications from Ark 21Shares and Global X, with the possibility of further delays. Furthermore, a federal appeals court ruling in August has necessitated the SEC to reassess its rejection of Grayscale Investments' bid to transform its Grayscale Bitcoin Trust into an ETF, citing inconsistencies in similar bitcoin product approvals.