Recently, a law firm wrote a piece highlighting SEC enforcement actions against a crypto broker-dealer and hedge fund. The article is worth the trip to the printer, especially if you are following the SEC’s view on a BTC ETF.
The very last lines in the footnotes of the article stand out: “An investment adviser is a fiduciary and this fiduciary duty applies to the investment adviser’s entire relationship with its clients, including advice on digital assets that may not be securities.”
If a digital asset is not a security, then it has to be a currency or a commodity. Apparently, the SEC’s enforcement powers go beyond the securities market and into the foreign exchange and commodities markets. That could represent a barrier to entry for crypto to come into mainstream investing.
What investment advisor would recommend a crypto ETF or crypto in general if the client can lose money then call a trigger-happy SEC?
Gold is usually 5% of diversified portfolios. Is the SEC going after investment advisors who put people in gold and silver after prices tanked? Probably not.
If a private wealth manager makes a bad call on fiat like the Euro or the Yen, are they wearing handcuffs? Probably not.
This theme ports over to thinking about advice around the Bitcoin ETF. If any such ETF is approved, there could be a flood of phone calls to financial advisors. There will be no shortage of clients seeking advice on whether or not the BTC ETF is a good investment.
If you drill into the details of this article, what compliance department is going to let financial advisors talk crypto?
That likely leaves the equities investing public on its own, trading any potentially SEC approved BTC ETF. It would be a shame if any potential Bitcoin ETF is relegated to the world of self-directed punters. The point of having an ETF is to have it become part of portfolios and the investing mainstream. If the SEC has an itchy trigger finger on crypto in general, an ETF approval could be an empty victory.
Bottom Line: A Bitcoin ETF would be great to boost BTC price or at least wake up the crypto market. It is unclear whether the regulatory strings attached to such an ETF would make the ETF something Satoshi would approve of.