Published On: Wed, Feb 14th, 2024

Decoding the SEC’s Actions: Why Bitcoin Stands Apart in Regulatory Scrutiny

The tension between the US Securities and Exchange Commission and the digital assets industry reached new heights last year. According to a recent report, there was a 50 percent increase in SEC enforcement actions targeting the crypto space in 2023, including 20 in the first quarter alone.

The increased SEC activity has shaken up the crypto space, even inspiring some firms to consider leaving the US altogether. When the SEC filed lawsuits in June 2023 against the Coinbase and Binance crypto platforms, some outlets reported the uptick in activity was “an existential threat” to the crypto industry. Other experts, however, pointed to the SEC suits as evidence that certain digital assets continue to offer value to investors

Photo/Pete Linforth

“Far from signaling the beginning of the end for the crypto industry, the recent SEC actions confirm that Bitcoin — which has achieved a unique level of regulatory clarity thanks to its special characteristics — continues to be an exceptional asset for investors,” says Peter Eberle, President and CIO of Castle Funds. “The 2023 lawsuits strengthen the SEC’s position that Bitcoin stands apart from other coins, largely because of its unique origins.”

Castle Funds is an investment firm that has been managing funds invested in Bitcoin and other digital currencies since 2017. They specialize in providing secure and compliant solutions for adding digital currency exposure to investment portfolios.

“Bitcoin has its origins in mining, with a decentralized global network of individuals driving its creation,” Eberle explains. “It wasn’t launched via public offering under the control of a central organization like other digital assets, which makes it distinct in the realm of digital currency investments and sets it on a different trajectory from other coins. Investors that understand this unique distinction will have greater hope for the future of crypto.”

SEC makes historic decision to approve Bitcoin ETFs

Less than two weeks into 2024, Bitcoin investors received more good news when the SEC approved the launch of 11 new Bitcoin exchange-traded funds (ETFs). While the funds are not the first Bitcoin ETFs, they offer investors a new opportunity because they draw their value from Bitcoin’s market price, whereas previous Bitcoin ETFs were futures-based.

The 2023 SEC lawsuits targeting crypto exchanges seem to have lent support to the long-anticipated approval of the new type of Bitcoin ETF.

“BlackRock, which is one of the world’s largest asset management firms and a leader in the effort to get approval for this new category of ETFs, seems to have studied the SEC’s lawsuits against Binance and Coinbase as it was preparing its filing for a Bitcoin ETF,” Eberle says. “Its application, which ultimately gained SEC approval, addressed how it would avoid the type of problems that led to the earlier lawsuits.”

One of the features provided in the BlackRock fund is a mechanism that safeguards against customer assets being diverted to an unauthorized party. That was one of the issues that arose in the FTX scandal, which resulted in a conviction for founder Sam Bankman-Fried on various fraud charges.

New SEC activities promise to fuel investor confidence

The extreme volatility of the cryptocurrency market, which is a facet regulators like the SEC have been very vocal about, has kept many investors on the outside. The approval of Bitcoin ETFs by the SEC, which indicates a higher level of regulatory confidence, promises to fuel a fresh wave of interest among investors and cryptocurrency investment firms.

“The SEC has made it clear for some time they don’t view Bitcoin as a security, which helps to clarify its regulatory exposure,” Eberle explains. “The recent approval of the spot Bitcoin ETFs will give institutional investors the confidence they need to invest in this asset class.”

Eberle points out that the new type of Bitcoin ETF will also provide benefits to investors focused on building their retirement accounts, who have faced challenges when it comes to crypto investing.

“Not all investors have an easy time getting exposure to Bitcoin,” Eberle says. “People with 401(k)s, IRAs, and similar accounts are among those who face that challenge, but the new Bitcoin ETFs will allow those investors to include those funds in their portfolios moving forward. Their interest could drive significant investment in the new funds in coming years.”

Will the SEC approval decrease volatility?

Bitcoin prices surged in early 2024 as investors anticipated the approval of the ETFs before its value declined in the wake of the approvals. The continued volatility should come as a warning to investors that wider access to Bitcoin does not necessarily correlate with more stability. Educated investing is still the best practice, regardless of regulatory actions.

“Recognizing the highly volatile nature of the crypto market is critical for investors,” Eberle says. “A variety of factors, including regulatory developments like ETF approvals, can trigger swift and dramatic price fluctuations. Consequently, crypto investors should always start with the thorough research needed to develop a comprehensive understanding of underlying dynamics.”

Author: Rohan Singh

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