Bitcoin ETF is 'inevitable,' says former SEC Chair Clayton

By Chris Matthews

SEC has legitimate concerns over investor protection

It's only a matter of time before U.S. regulators approve a spot bitcoin ETF, according to former Securities and Exchange Commission Chairman Jay Clayton.

"Approval is inevitable," Clayton said Friday in an interview with CNBC, adding that the current state of affairs, wherein retail traders have access to a bitcoin futures exchange-traded product but not one based on the bitcoin cash market "can't go on forever."

Clayton said that the SEC has had legitimate concerns that the bitcoin cash market "was so easily manipulatable that retail folks should not have access to it," but that there's growing evidence against his attitude.

"There are now large institutions with surveillance mechanisms who are coming in and saying, no, that's not the case," Clayton said. "That's a shift."

The statement follows an order by a federal judge that the SEC must reconsider Grayscale Investments application to debut a bitcoin spot ETF, with the court ruling that its decision to approve two bitcoin futures funds, but to deny applications for a bitcoin spot ETF, was "arbitrary and capricious" and in violation of federal administrative law.

The SEC had denied Grayscale's application on the basis that bitcoin spot markets could not be sufficiently surveilled to prevent fraud and manipulation, while bitcoin futures markets were overseen by registered futures exchanges with sophisticated surveillance capabilities.

Grayscale argued that because bitcoin futures prices closely tracked bitcoin spot markets, it was illegitimate to distinguish between the two, and the court agreed. The SEC could still find other reasons to deny the application.

The SEC has requested more time to evaluate spot bitcoin ETF applications by other firms, including Blackrock(BLK) and WisdomTree Funds (WT). The SEC will now have until mid-October to decide whether to approve these applications, roughly coinciding with a deadline given by the court for the SEC to respond to its ruling in the Grayscale case.

-Chris Matthews

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09-01-23 1142ET

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