Cryptocurrency investors are eagerly anticipating the Securities and Exchange Commission's (SEC) approval of exchange-traded funds (ETFs) based on smaller cryptocurrencies like ether (ETHUSD). However, Stephanie Breslow, partner and co-head of the investment-management group at law firm Schulte Roth & Zabel, suggests that it might be premature to get excited.
According to Breslow, there is still an ongoing disagreement between the SEC and market participants regarding which cryptocurrencies qualify as securities. This includes a debate over whether previously classified securities still hold that designation. While bitcoin has been publicly labeled by SEC Chair Gary Gensler as a commodity rather than a security, other cryptocurrencies are subject to scrutiny.
Coinbase and Binance, two prominent crypto exchanges, are currently facing separate lawsuits from the SEC alleging that they operated unregistered securities exchanges. The legal proceedings are still ongoing for both cases.
A significant ruling came in July when U.S. District Judge Analisa Torres determined that Ripple Labs' XRP token is not a security when traded on digital-asset exchanges to the general public. However, the judge did find that Ripple's sales to sophisticated institutional investors qualified as an unregistered sale of investment contracts, violating federal law.
In a final development, the same judge denied the SEC's request to appeal the decision in October.
The Relevance of Lawsuits for Crypto ETFs
According to Breslow, it is crucial to keep track of the developments and rulings of lawsuits related to cryptocurrencies. These court cases may not directly determine the possibility of having an ETF, but they are likely to establish the boundaries between what constitutes a security and what does not. This distinction is significant in determining which cryptocurrencies can be wrapped into ETFs.
In situations where the SEC considers a particular crypto as a security and believes that it should not be traded on various exchanges or be accessible to U.S. markets, the likelihood of an ETF for that crypto becomes low, added Breslow.
However, even if a crypto is not classified as a security, other factors come into play. Breslow highlights that the market for the crypto must be substantial and rational enough to support an ETF. For instance, bitcoin, which has high trading volume, proves to be a viable candidate for an ETF. On the other hand, cryptos with low trading volumes may struggle to meet the requirements for an ETF.
Trump's Perspective on Cryptocurrencies
As prospects of Donald Trump's potential second administration for the 2024 presidential election arise, some crypto enthusiasts place their trust in his stance towards cryptocurrencies.
However, upon examining Trump's previous term in office, doubts may surface regarding his support for cryptocurrencies. Trump expressed skepticism towards bitcoin, referring to it as a scam during an interview with Fox Business in 2021. Moreover, he revealed his concerns about cryptocurrencies competing against the U.S. dollar, indicating his dislike for them.
In 2019, during the controversy surrounding Facebook's Libra cryptocurrency project, Trump remarked that the value of cryptocurrencies is based on thin air.
Crypto Market Update
Recent data from CoinDesk reveals that bitcoin experienced a 6.2% decline in the past week, while ether suffered a loss of approximately 12.2% during the same period.