Representatives Tom Emmer (R-MN) and Darren Soto (D-FL), two of the most active leaders of the Congressional Blockchain Caucus, today sent a letter to Securities and Exchange Commission Chairman Gary Gensler about an issue on every crypto investor's mind.
Their question: Why don't we have a Bitcoin ETF?
"We question why, if you are comfortable allowing trading in an ETF based on derivatives contracts, you are not equally or more comfortable allowing trading to commence in ETFs based on spot Bitcoin," the congressmen wrote. "Bitcoin spot ETFs are based directly on the asset, which inherently provides more protection for investors."
ETFs are investment products that track the price of an asset or assets. Retail investors can integrate ETFs into their retirement and savings portfolios to get price exposure to different stocks and bonds. A Bitcoin ETF would allow people who don't want to buy and store Bitcoin themselves to still get in on the action; instead of buying BTC on a cryptocurrency exchange, they could buy and trade it on a stock exchange.
But Bitcoin futures ETFs aren't that. They track the price of investment contracts that speculate on the coming price of BTC. All in all, a more complicated venture for average Americans—and one that Emmer and Soto believe can be more volatile and costly.
Nonetheless, last month, the SEC, which has for years rejected applications for a Bitcoin ETF, stepped aside to allow trading of Bitcoin futures ETFs. Gensler had indicated in August that he was hoping to see such applications, which would fall under the Investment Company Act of 1940. "When combined with the other federal securities laws," Gensler claimed in the August speech that set off the mad dash of crypto futures ETF filings, "the '40 Act provides significant investor protections."
Ostensibly, that decision was made due to the potential for Bitcoin spot prices to be manipulated or vulnerable to fraud. But Emmer and Soto point out that any fraud or manipulation in spot markets would necessarily bleed over into Bitcoin derivatives. According to the representatives, "90.47% of pricing of the CME CF Bitcoin Reference Rate (BRR), which is the pricing index that CME futures-based ETFs use, is made up of the spot Bitcoin exchanges: Coinbase, Kraken, and Bitstamp." If the spot markets are rotten, the derivatives markets will be too, they suggest.
The congressmen insist they're not taking sides—they just aren't buying Gensler's argument that derivatives are safer. They concluded that "unless there are clear and demonstrable investor protection advantages, investors should have a choice over which product is most suitable for them and their investment objectives."