Due to fears of market manipulation, centralization, and custody security, the Chairman of the US Security and Exchange Commission Jay Clayton has said that the commission will not support cryptocurrency ETF. This means that the SEC’s Bitcoin ETF approval is postponed till further notice. In the words of Clayton:
“What investors expect is that trading in a commodity that underlies an ETF [needs to] makes sense and is free from the risk of manipulation. . . It’s an issue that needs to be addressed before I would be comfortable [adding digital currency ETFs].”
At the moment, cryptocurrency exchanges do not have the same protections from market manipulations as traditional markets [e.g NYSE and NASDAQ] – which have surveillance measures in place to monitor and prevent manipulation and other kinds of abuse. Concerning this issue, Clayton asserts:
“Those kinds of safeguards do not exist currently in all of the exchange venues where digital currencies trade. . . When you see an asset trade on [the] Nasdaq or NYSE, there’s a great deal of surveillance preventing you and me from teaming up and pretending we’re decentralized. Those sort of safeguards do not exist in a lot of markets where digital currencies trade.”
This sentiment is not only common in the SEC; even Cryptocurrency enthusiasts believe that “Crypto Whales” manipulate the market to their advantage. Clayton believes that Bitcoin and other digital currencies are not as secure as other traditional assets.
The purported SEC’s ETFs approval raised hope about market recovery in the industry, but the recent decision by the SEC doesn’t help the current market crash especially in the short run. However, in the long run, SEC may reconsider integrating cryptocurrencies, ETFs, and other securities into the broader market once better oversight is established and regulations are stress-tested. In this regard, the market will need to find another means to bounce back.