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Did the SEC Approve the ETF or the ETP? CryptoStake Explains

SEC's official explains the terminology 

The U.S. Securities and Exchange Commission (SEC) recently made headlines with its clarification on the nature of newly approved Bitcoin products. Amidst growing interest and potential confusion among investors, SEC commissioner Caroline A. Crenshaw emphasized that these products are Exchange Traded Products (ETPs), distinct from the widely known Exchange-Traded Funds (ETFs). 

Caroline A. Crenshaw:

“I am concerned that there will be confusion about what exactly these products are – (they are not ETFs [exchange-traded funds] registered under the Investment Company Act of 1940, the ubiquitous products that today are used by millions saving for retirement) – and that investors may infer protections that do not in fact exist.”

This distinction, critical in the investment world, stems from the products' registration under different regulatory frameworks. While ETFs fall under the Investment Company Act of 1940, the approved Bitcoin products are regulated under the Securities Act of 1933 as ETPs. Crenshaw's statement highlights the necessity for clear communication to investors, who might mistakenly associate these new products with the familiar protections and structures of traditional ETFs.

Diverse views within the SEC

Despite Commissioner Crenshaw's concerns, other SEC members have shown a more accepting stance towards the approval of these Bitcoin products. Commissioners Hester Peirce and Mark Uyeda, alongside SEC Chair Gary Gensler, referred to the newly approved offerings as ETPs, aligning with the commission's official stance. Gensler, known for his critical approach towards cryptocurrency regulation, notably supported the recent approvals. 

However, unlike Crenshaw, these commissioners did not delve into the nuances distinguishing ETPs from ETFs. Their collective approach underlines the SEC's evolving perspective on cryptocurrency products, balancing regulatory oversight with the dynamic nature of digital assets.

The impact on investors and asset managers

The SEC's classification of these Bitcoin products as ETPs raises important considerations for both investors and asset managers. While the SEC order mentioned several offerings with "ETF" in their names, it consistently defined them as spot Bitcoin ETPs. This distinction is crucial, as the Financial Industry Regulatory Authority (FINRA) notes that ETFs are a specific type of ETP, without a universally agreed-upon definition. 

For investors, this means exercising caution and seeking clarity on the type of product they are investing in. Asset managers, including firms like Grayscale and platforms like Coinbase, also face the responsibility of accurately communicating the nature of these products.