SEC chair Gary Gensler. Source: A video screenshot, YouTube / SEC

The United States Securities and Exchange Commission (SEC) Chairman Gary Gensler has issued a warning for those considering investing in crypto assets ahead of potential Spot Bitcoin ETF approval.

A thread

Some things to keep in mind if you’re considering investing in crypto assets:

— Gary Gensler (@GaryGensler) January 8, 2024

On January 8, Gary Gensler, the Chair of the U.S. SEC, issued a cautionary message to crypto investors via a thread on the social media platform X (formerly Twitter). While not explicitly mentioning a spot Bitcoin ETF, Gensler urged crypto investors to consider certain factors.

Gensler highlighted that asset managers offering crypto investment vehicles “may not be complying” with federal securities laws. He emphasized the exceptional risk and volatility associated with cryptocurrencies, cautioning investors that they might lack key information and important protections when investing in crypto asset securities. Gensler pointed out instances of major platforms and crypto assets becoming insolvent or losing value, emphasizing the ongoing significant risks of crypto investments.

3⃣Fraudsters continue to exploit the rising popularity of crypto assets to lure retail investors into scams. These investments continue to be replete w/ fraud- bogus coin offerings, Ponzi & pyramid schemes, & outright theft where a project promoter disappears w/ investors’ money.

— Gary Gensler (@GaryGensler) January 8, 2024

The SEC Chair warned investors about the prevalence of fraud in the crypto space, where fraudsters exploit the growing popularity of crypto assets to deceive retail investors through scams such as bogus coin offerings, Ponzi and pyramid schemes, and outright theft. Gensler urged investors to remain vigilant to avoid falling victim to fraudulent activities.

While Gensler did not provide explicit hints about the SEC’s stance on the spot Bitcoin ETF, some observers view his comments as a final statement before the agency makes decisions on ETF applications approaching key deadlines. Approval of fully regulated spot ETFs could facilitate easier trading of digital assets for a broader range of investors, potentially leading to significant inflows into the crypto industry.

The SEC, under Gensler’s leadership, has been actively addressing the compliance of cryptocurrency businesses with securities laws. Legal battles over the SEC’s regulatory approach have yielded mixed outcomes, with some judges finding the agency on the wrong side of arguments. However, the SEC has also secured victories, including a recent ruling in the Terraform Labs case, affirming the regulator’s stance on the improper promotion of unregistered crypto securities by the company.

SEC Expected to Decide on Spot Bitcoin ETF Applications Amid Growing Anticipation

The statement comes amid expectations that a Spot Bitcoin ETF could receive its first approval in the United States this week. Bloomberg has recently upgraded its projection, now anticipating a 95% chance of approval.

A decision is widely anticipated in the coming days, particularly due to the January 10 deadline for the SEC to respond to the first application in the recent wave, submitted by ARK Investment and 21Shares.

Various well-known firms, including Valkyrie, WisdomTree, BlackRock, VanEck, Invesco, Galaxy, Grayscale, Fidelity, Bitwise, and Franklin Templeton, have also submitted their applications for spot Bitcoin ETFs. The SEC’s decision on these applications remains uncertain, and it’s unclear whether they will be approved simultaneously or individually.

With exchanges, including Nasdaq, NYSE, and Cboe, filing amended 19b-4 forms on Friday, the SEC is now in a position to make decisions. If these forms are approved, trading can commence once the parallel process of S-1 forms becoming “effective” is completed.

However, analysts note that the SEC holds broad authority in the process and could potentially consider delaying a decision again. Criticism has been directed at Chairman Gensler due to the SEC’s delay in approving a spot crypto ETF despite multiple applications from asset managers spanning several years.

SEC Chair Gary Gensler did not provide any clear indication of his stance in his recent comments, which align with past warnings he has issued to crypto investors. In August, a federal judge instructed the SEC to reevaluate a spot BTC ETF application from Grayscale, asserting that the commission’s denial of the investment vehicle was “arbitrary and capricious.”

In late November, Gensler refrained from preemptively expressing views on the ongoing review process for spot Bitcoin ETFs, emphasizing the agency’s “time-tested” review process.

The SEC retains the option to deny applications, although it would likely require different reasons than those previously cited for denying other ETFs.

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