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Thursday is the deadline for the approval or denial of the first spot ether exchange-traded fund, and while SEC Chairman Gary Gensler has not commented on how the agency will proceed, he said the regulator will āfollow the law.ā Right now, there are at least nine applications for spot ether ETFs in front of the U.S. Securities and Exchange Commission. VanEckās ether ETF is first in line, with a deadline of May 23. In a discussion Thursday morning with Investment Company Institute president Eric Pan at the ICI Leadership Summit, Gensler said the SEC was ādeeply committed to following the law.ā He noted that when the U.S. Court of Appeals for the D.C. Circuit ruled against the SECās denial of spot bitcoin ETFs, the regulatory agency āpivotedā and approved those funds in January. Gensler took aim at recent crypto legislation that had just passed the House of Representatives. The Financial Innovation and Technology for the 21st Century Act , known as FIT 21, passed in the House Wednesday afternoon by a vote of 279-136, with 71 Democrats voting in favor. The bill sets up a regulatory framework for crypto assets.Ā It would give the SEC oversight of ārestricted digital assetsā while the Commodity Futures Trading Commission would be given a more prominent role to regulate ādigital commoditiesā and their derivatives. President Joe Bidenās administration opposed passage of the bill, saying it lacked sufficient protections for investors, though he stopped short of saying he would veto it. Gensler reiterated that he, too, was opposed to the bill in its current form. āIt comes down to the rampant noncompliance with U.S. law, it comes down to the frauds and the scams. This is a field where some of the leading lights are now in jail or waiting to go to jail,ā he told Pan. He also noted that crypto has a very limited use case.Ā āThereās fifteen or twenty-thousand tokens in this field. They do not operate as a currency. Is anybody in this room using it to buy a cup of coffee at Starbucks?ā he asked, noting that one of the only areas crypto is used as a medium of exchange is for illicit activities. Gensler: āMostā cryptocurrencies are securities subject to SEC regulation The SEC chairman also continued to argue that āmostā cryptocurrencies are securities, saying almost all involve an investment of money in a common enterprise with a reasonable expectation of profits, which is the Supreme Court test for an investment contract. Another prong of the definition of an investment contract is whether the digital assets are sufficiently ādecentralizedā ā that is, whether the asset is not just dependent on a small group of people but is driven by a large community of users. Gensler said crypto assets ā and exchanges in particular exchanges ā do not meet this test: āThis field is not decentralized.Ā There are a number of very significant players in the middle of this market.ā He said crypto exchanges are āoperating in ways that are conflicted in ways that traditional exchanges [are not].Ā Weād never let a traditional exchange trade against their customers.ā Addressing the asset managers attending the conference, Gensler urged them to carefully consider the āvalue propositionā and the business model that crypto offers. āThink about whatās really the value proposition of each of these,ā he said.Ā āYouāre not getting the disclosuresā¦for you as asset managers, to make an informed decision, you want data.Ā And this field is not giving you the data.ā Gensler says he is not against financial innovation The SEC chairman pushed back against the claim he was against financial innovation. āI truly believe that with refs on the field finance has been able to not just prosper but really take off, and it [regulation] promotes innovation,ā Gensler said. āSome of the greatest innovation in U.S. history has been done by regulated registered companies,ā he added.
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