This month in crypto: Ethereum ETFs approved in shock U-turn, Bitcoin ETFs come to UK… sort of

It’s going to be a short issue this month, but it’s going to cover some very big news.

Unfortunately, I don’t have time to write my usual meandering commentary on each of these stories. 

But I’ll link to a decent article on each story. And if that source is paywalled, I’ll also give you a link that gets round the paywall.

[Harry from the future here. Turns out when I started writing, I couldn’t resist adding my usual commentary, so scratch that.]

Okay, so first up…

The Ethereum ETFs were all approved in a shock U-turn by the Securities and Exchange Commission

And it really was a shock U-turn. Up until this week, Bloomberg’s ETF analyst, Eric Balchunas, was only giving the approvals a 25% chance of success.

And he’s usually spot on.

So what changed?

*Politics has entered the chat.*

It was all political. And it could have big consequences for the entire crypto industry going forward – think more crypto projects getting ETFs.

I’ll be covering all of this in detail in this month’s premium issue, in a week or two. And I’ll tell you more about the political context in just a minute.

But in the meantime, I thought this article from Finance Magnates covered the story pretty well.

Bitcoin ETFs coming to the UK – but you can’t invest in them. Yes, you!

Our own version of the SEC, the Financial Conduct Authority (FCA) has decided that spot Bitcoin ETFs will be allowed on UK markets. But there’s a catch, a big one…

You are not allowed to invest in them.

They are only for the old boys club.

Ordinary citizens – or plebs, as we’re more commonly known – are not intelligent enough to understand the risks of investing in Bitcoin ETFs. So we’ve been banned for our own safety.

Only institutional investors and the super-rich will be allowed to invest in Bitcoin ETFs in the UK.

The plebs, can, however, still just buy Bitcoin on any number of dodgy exchanges, and leverage up those buys to their hearts’ content.

We can also walk into any bookie on any high street and gamble away all our money betting on the footie, or the dogs, or the horses… of just on those bright, shiny jackpot machines.

We can also trade as much highly-risky Forex as we want – which, like gambling, also has the bonus of being tax free if you win.

But we cannot buy a secure, regulated, Bitcoin ETF, that’s trading on the London Stock  Exchange. That is far too risky. And far too difficult for our tiny, working-class brains to understand.

From the Financial Times:

The UK’s first cryptocurrency exchange traded products are finally set to begin trading next week, almost a decade after the first such vehicles appeared in Sweden. …

However, the ETPs — which form part of a barrage of similar vehicles expected to list on the LSE — will only be available to professional investors because the FCA has ruled that “crypto derivatives are ill-suited for retail consumers due to the harm they pose”. 

The stance is in sharp contrast to stock exchanges across much of continental Europe, as well as Australia, Brazil, Canada, Hong Kong and the US, which offer crypto ETPs to both retail and institutional investors. US-listed spot bitcoin ETFs already boast combined assets of $50bn, despite only launching in January, with about 80 per cent of this held by retail investors, according to regulatory filings.  

(ETP means Exchange Traded Product, because technically no Bitcoin spot ETF is an ETF, because it’s not a fund. But people just call them ETFs for ease.)

I guess you could say it’s a step in the right direction?

But it seems we’re still some way off us plebs being allowed to hold Bitcoin ETFs in ISAs… or hold them at all.

Gotta love the old boys’ club. Still alive and well and in control in the UK in 2024.

Here’s a non-paywalled link to that Financial Times article.

“FIT21” – possibly the biggest crypto news ever

Right now in America, a piece of legislation is making its way through the system that could change the entire crypto landscape.

It’s called the Financial Innovation and Technology for the 21^st Century Act, or FIT21.

It states:

This bill establishes a regulatory framework for digital assets.

The Commodity Futures Trading Commission (CFTC) must regulate a digital asset as a commodity if the blockchain, or digital ledger, on which it runs is functional and decentralized. The bill classifies a blockchain as decentralized if, among other requirements, no person has unilateral authority to control the blockchain or its usage, and no issuer or affiliated person has control of 20% or more of the digital asset or the voting power of the digital asset. In addition, the bill provides the CFTC with exclusive regulatory authority over cash or spot markets for digital commodities.

The Securities and Exchange Commission (SEC) must regulate a digital asset as a security if its associated blockchain is functional but not decentralized. However, the bill establishes certain exceptions to SEC regulation for digital assets that limit annual sales, restrict nonaccredited investor access, and satisfy disclosure and compliance requirements. The bill also sets forth requirements for primary and secondary market transactions.

So, basically, it would classify decentralised crypto projects as commodities NOT securities and give the much more lenient CFTC jurisdiction over them. As opposed to the SEC.

This would – as people like to say – open the floodgates.

And this week – literally one day before the Ethereum ETFs were approved – it passed the House. 

What was interesting here is that usually it’s the republican party that votes pro crypto and the democrats that vote against.

But this is an election year, and as an estimated 53 million Americans own crypto, both sides are now chasing the “crypto vote”.

So both sides supported the act.

But it still has two more levels to get through. It now goes to the Senate, and if it passes there, it goes to the president.

And the Biden administration is not a fan of the Act. It actually issued a statement on Wednesday opposing it, but didn’t go as far as to veto it.

So the jury is still out on if FIT21 will become law or not.

Read: Joe Lubin (Consensys and Ethereum co-founder) has some thoughts on how Ethereum is becoming a political issue (Coin Telegraph).

Binance’s founder and (former) CEO sentenced to four months in prison

This court case has been going on for a while now. But basically the Department of Justice (DOJ) sued Binance for “violations of the Bank Secrecy Act”.

It eventually led to a $4.3 billion fine for Binance and the removal of its founder Changpeng “CZ” Zhao from the company.

This month CZ was sentenced to four months in prison and ordered to pay a $50 million fine for his part.

That might sound like a lot, but he has an estimated net-worth of $40 billion, so…

What did he and Binance do wrong?

It wasn’t like the FTX scandal, Binance wasn’t doing anything with customer deposits or stealing money. It just didn’t have enough anti-money-laundering mechanisms in place.

You can read more about it in this CNBC article.

SEC sues Robinhood

Just before the big U-turn on crypto, the SEC went on a litigation spree, suing just about all the big players in the crypto industry.

And the latest one is memestock traders’ (former) favourite, Robinhood. It’s actually the second time the SEC has sued Robinhood. But this time around it’s to do with crypto.

You can read about it in this Financial Times article.

(That article isn’t paywalled for me. But if it is for you, you can use this link instead.)

It’s probably worth noting the SEC hasn’t actually sued Robinhood yet, it’s just issued a “Wells notice”, which means it’s launched an investigation. 

Given the new political climate, maybe it’ll decide not to sue in the end.

Consensys sues SEC

The reason the Ethereum ETF approvals came as such a shock is because the SEC is in the process of trying to classify Ethereum as a security.

From decrypt on the 7^th of May:

Last week, previously redacted portions of a lawsuit filed by Ethereum software firm Consensys against the SEC revealed a bombshell: The agency has secretly considered ETH to be a security for over a year.

Per the suit, the SEC is actively investigating a number of American companies for their involvement in the buying and selling of ETH; it is also reportedly investigating ties between said companies and the Ethereum Foundation, the Swiss nonprofit that supports the Ethereum Foundation.

In February, the Ethereum Foundation itself was subpoenaed by an unnamed “state authority.” Fortune reported that it was indeed the SEC, but the agency has not confirmed that.

Which is why Consensys – which is a major player in the Ethereum ecosystem – decided to pre-emptively sue the SEC.

You can read about that on CoinDesk here.

What will be interesting is how this all goes down now the US political elite have changed their minds on crypto.

Okay, that’s all for today.

Thanks for reading.

Harry

Full disclosure: At time of writing, I held the following cryptos: Ethereum, IOTA, Radix, Mina Protocol, Aleph Zero.

Disclaimer: This content does not constitute financial advice, tax advice or legal advice. Your money and how you choose to spend it is your responsibility. Nothing that appears here should be construed as investment advice or recommendations to buy or sell any securities, cryptos or investments. coin confidential does not offer investment advice. We merely provide information. Crypto investing is highly risky, and you could lose 100% of the money you put in. You should not base any investment decision solely on information we publish. We believe all information we publish to be accurate, but we cannot guarantee it. Always do your own research before making any decisions about your money. See the full disclaimer for more.