Last month, Securities and Exchange Commission (SEC) Chair Gary Gensler claimed a new bipartisan bill from Senators Lummis and Gillibrand to create a regulatory framework for cryptocurrency could “undermine” market protections. 

“Frankly, if I can turn away from the legislation, we don’t want to undermine the protections we have in a $100 trillion capital market. You don’t want our current stock exchanges, our current mutual funds, our current public companies [to] sort of inadvertently by a stroke of a pen say, ‘You know what, I want to be noncompliant as well. I want to be outside of the regime’ that I think has been quite a benefit to investors and economic growth over the last 90 years,” Gensler told the Wall Street Journal.

Gensler’s comments, however, aren’t sitting well with some SEC commissioners who believe the commission is crippling financial innovation.

Trump-appointed SEC Commissioner, Hester M. Peirce, criticized Chairman Gensler and her Democrat colleagues’ disdain for digital currencies like Bitcoin. She condemned her agency for their “out-of-character” regulatory guidance. She urged the SEC to not deny spot crypto exchange-traded products (ETFs) and to adopt a regulatory framework à la the Lummis-Gillibrand bill—the former, of which, are ubiquitous in countries like Canada. 

This comes at the heels of a lawsuit filed against the SEC by Grayscale Bitcoin Trust, the “world’s largest bitcoin fund.” 

The Biden administration is singling out the company because they see spot ETFs, where Bitcoin buyers hold it within the fund, as “fraudulent and manipulative acts and practices.” Grayscale believes the agency outright denied them the opportunity to convert their bitcoin trust to a spot ETF in order to create more hurdles for investors.

Alternatively, their technology appears to make digital currency investment more feasible by reducing “discounts and premiums” and lead to an additional $8 billion in capital. 

The company’s lawyer contends the SEC is in violation of both the  Administrative Procedure Act and Securities Exchange Act of 1934.

“We were simply asking the SEC to hold this product to a higher standard, to give it greater investor protection and give greater risk disclosure for investors,” Grayscale CEO Michael Sonnenshein told CNBC. “Converting would unlock billions of dollars of unrealized shareholder value.”

Investopedia explains that ETFs “give retail investors and investors not comfortable investing in cryptocurrencies access to them without actually owning them.” As a result, they are viewed as a “more legitimate method of investment because a spot ETF involves holding Bitcoin.”

As I previously noted at IWF, the Biden administration wants to have undue influence over cryptocurrency. It laid out a six-point plan in their March 2022 Executive Order, Ensuring Responsible Development of Digital Assets, to tackle non-fungible tokens like Bitcoin—including a proposal to create a U.S. Central Bank Digital Currency (CBDC).  

Cryptocurrency advocates are optimistic their legal push back will be successful. The West Virginia vs. EPA decision is especially timely given the ruling likely limits the SEC’s ability to regulate digital currencies since regulation would fall outside their current congressional authority.