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**JANUARY 8, 2024**
On the Prospect website
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Why and Where the Working Class Turned Right
A new book documents the lost (and pro-Democratic) world of
Pennsylvania steelworkers and how it became Republican. BY HAROLD
MEYERSON
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Democrats Could Score Big by Blocking This Revolver
Demetrios Kouzoukas's nomination battle offers the perfect
opportunity for Democrats to prove themselves to voters. BY JULIAN
SCOFFIELD
CFPB Report Finds Long-Predicted Student Loan Servicer Problems
Everyone thought these companies couldn't handle the end of the
repayment pause. Everyone was right. BY RYAN COOPER
Kuttner on TAP
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**** Will the SEC Cave on the Latest Crypto
Scam?
The usually public-minded commission is on the verge of permitting a new
Bitcoin gold rush.
The Securities and Exchange Commission, which has done a decent job of
protecting the public from cryptocurrency scams, is on the verge of
making a disastrous decision to allow financial companies to offer the
equivalent of exchange-traded funds comprised of Bitcoins.
The sponsors include BlackRock, Fidelity, and 11 other firms.
In anticipation of a favorable SEC ruling
,
the price of Bitcoin, which had languished around $25,000 as recently as
last September, has been bid up to over $45,000. The financial press has
reported
that BlackRock alone has at least $2 billion lined up for this play and
that the first-quarter trading volume could be $40 billion. With crypto
mercifully dying of its own weight, the SEC could throw it a lifeline.
SEC Chair Gary Gensler, who once taught a course on crypto at MIT, has
long warned that creations like Bitcoin, backed by nothing other than
speculative expectations of investors, are dubious investments lacking
the safeguards that the securities laws impose on stocks and bonds.
Exchange-traded funds made up of Bitcoins operate at one further remove
from scrutiny. The main beneficiaries are the financial companies that
propose to offer them.
So why is Gensler's SEC on the verge of granting approval? One reason
is the immense political pressure from Wall Street on Gensler and the
other two Democratic SEC commissioners. Another is a misreading of a
court case that is alarming SEC lawyers.
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In its August 2023 decision in a suit brought by Grayscale Investments,
a financial company, the D.C. Circuit
asked the SEC to justify its decision to allow a financial company to
offer an exchange-traded crypto product based on futures markets, but
not on spot markets. This opened the floodgates to other applications to
create exchange-traded funds for spot crypto.
The short answer to the court's question is that futures markets have
their own regulatory schema, while exchange-traded products in the
crypto spot market would be essentially unregulated. But some of the SEC
legal staff have concluded based on the Grayscale ruling that if the SEC
banned exchange-traded products for the spot market, they could be
overruled in court. This concern is said to be spooking Gensler.
However, as Dennis Kelleher, who heads the watchdog group Better
Markets, wrote in a comment letter to the SEC
,
the Grayscale ruling "just means that the Commission must more clearly
explain why it would deny a spot bitcoin ETP while previously approving
bitcoin futures ETPs." Or as former SEC official John Reed Stark put it
more pithily
,
"The difference between buying a bitcoin futures ETF and a bitcoin spot
ETF, is like the difference between buying a lottery ticket from the
State of New Jersey and buying a lottery ticket from Tony Soprano."
Kelleher added, "The SEC must not facilitate the financial carnage that
will follow if the crypto industry is allowed to repackage, add a veneer
of legitimacy to, and widely disseminate a financial product that is
little more than a socially worthless gambling chip."
Amen. The SEC has until Wednesday to act.
~ ROBERT KUTTNER
Follow Robert Kuttner on Twitter
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