Gary Gensler’s Bitcoin ETF Clown Show

As if the egg on his face weren't enough, Gary Gensler also has sour grapes. An hour after the U.S. Securities and Exchange Commission (SEC), the agency he leads, approved just under a dozen spot bitcoin ETFs, Gensler issued a statement making absolutely clear the move is absolutely not an endorsement of bitcoin (BTC).

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“Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto,” is how he chose to end his personal statement. This is nothing new for the top securities cop in the U.S. Gensler has said time and again that cryptocurrencies have failed to demonstrate societal value.

Nevermind that BlackRock, the world’s largest asset manager, reignited interest in bitcoin last year, during the depths of the bear market, when it applied to list a spot bitcoin exchange-traded fund (ETF) based on the obvious consumer demand for such a product. Soon after, the SEC was fielding at least 12 other ETF applications, and BTC’s price was rallying.

Perhaps worse for Gensler, the demand is real: BlackRock’s iShares Bitcoin Trust (IBIT) is on track to notch a historic $3 billion in capital inflows on its first day of trading, to say nothing of its competitors. The sheer number of thematic crypto funds launched this week is also unprecedented, showing the high level of interest by financial service providers.

As Georgetown professor James Angel told CoinDesk over email, the SEC, by denying them for so long, may itself have had a hand in stirring demand for bitcoin ETFs. Gensler noted, until Wednesday, the agency had denied at least 20 such applications, which indirectly acted as free marketing.

In his letter, Gensler suggests he likely would have preferred that the current cast of bitcoin ETFs didn’t come to market at all. But his hand was forced after an appeals court in Washington D.C. reprimanded his agency’s “arbitrary and capricious” logic for denying Grayscale’s plans to convert the GBTC trust into an ETF.

See also: Bitcoin ETFs Approved: The Industry Reacts

Gensler doesn’t sound particularly gracious when telling the story, saying that only after the SEC ran out of options to reject more spot bitcoin ETF applications did it become clear that “the most sustainable path forward” was to finally approve them.

Although the agency has had a few high-profile settlements with crypto promoters, when cases actually go to court, it hasn’t really worked out in its favor (see: SEC v. Ripple). None of this bodes well for the SEC in the legal fights it is picking with fighters like Coinbase and Kraken, in which the SEC has made bold, unproven claims about securities law and crypto.

Moreover, Gensler doesn’t sound particularly “merit neutral” (which is how the SEC describes its role in regulating markets) when drawing a comparison between bitcoin and gold, saying one is a commodity with industrial and consumer use and the other is primarily used for ransomware, money laundering, sanctions-evasion and terrorist financing, when not for pure speculation.

There’s something like $16 trillion worth of capital in gold ETFs today, an indication that gold might just be a tool for speculation, too. Putting all that aside, in recent months the SEC has gone to lengths to point out the cybersecurity risks around cryptocurrencies, which seems part and parcel of its broader push to strengthen corporate security protocols.

The Financial Times reported: Gensler has made “security a pillar of his agenda, adopting tougher rules to broaden disclosures of businesses’ cyber incidents and punishing companies for misleading investors about their cyber security practices.” The agency has even posted PSAs on social media about best practices for password protection.

All of which makes the agency’s own “security incident” on Tuesday – when an unknown actor “breached” the SEC’s Twitter/X account to post about bitcoin ETFs – all the more embarrassing. According to an investigation X’s “Safety” team, the SEC did not have two-factor protections turned on. So much for Gensler’s public service announcements.

It was such a bizarre incident that I’m wondering if it was an inside job, perhaps Gary’s last ditch effort to prove that bitcoin markets could be manipulated so that he again could delay the inevitable. (Bitcoin ETFs were often denied due to market manipulation concerns).

See also: Bitcoin ETFs: The Bull Case

Only that, because bitcoin is considered a commodity, the hack might be investigated by the SEC’s sister agency/rival, the Commodities Futures Trading Commission, which would be an extreme embarrassment for Gensler, who used to hold the top job there. Indeed, several U.S. Senators have already called to investigate the “widespread confusion” caused.

So if you’re keeping track at home: the agency with a tripartite mission to protect consumers, foster capital formation and ensure fair markets has taken an L for trying and failing to keep a highly demanded product from launching, has been chewed out in court multiple times over unfair reasoning and crossed itself by not even following its own cybersecurity advice.

Gensler came out swinging when he entered office, quickly dispelling any notion that the former MIT professor who taught about blockchain would be favorable to the industry. Early on, he called the whole shabang “decentralization theater.” It turns out, the only clown in this show is him.