Fake bitcoin post shows SEC crypto quandary

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The prospect of bitcoin exchange traded funds leaves cryptocurrencies teetering on the cusp of mainstream respectability. A fake post this week claiming regulatory approval again illustrates the proliferation of crypto scams. It is certainly an argument against using social media for market-moving announcements. But it is unlikely to derail the funds. 

On Tuesday, the US Securities and Exchange Commission was forced to refute a post on its X account that claimed it had approved the listing of spot bitcoin ETFs. Gary Gensler, SEC chair, used the platform to clarify that the SEC’s account had been “compromised”. The price of bitcoin, which had jumped 2 per cent, promptly fell more than 3 per cent. 

Crypto purists envisage a decentralised financial world without tedious oversight from governments and regulators. More pragmatic bitcoin holders see regulators as the key to larger digital asset markets and thus higher prices. 

The prospect of regulatory approval for bitcoin ETFs has already bolstered prices, counteracting the negative effects of scandals such as the collapse of stablecoin Terra and crypto platform FTX. At $45,525 the price is up by more than 150 per cent in the past 12 months, though it remains a third below the all-time high. One analyst at Standard Chartered predicts SEC approval of bitcoin ETFs could send it as high as $100,000.

Investors who have followed the SEC’s concerns about market manipulation and its attempt to reject bitcoin ETFs may steer clear. Another dubious attempt to juice prices plays into sceptics’ concerns.

But the regulator’s hand is in effect being forced: it lost a court case against Grayscale Investments, which wants to convert a bitcoin trust into an ETF. The ruling noted the similarity between existing ETFs trading in bitcoin futures and potential spot bitcoin ETFs. Fidelity, BlackRock and Ark Investment Management are already competing on fees, despite spot products not yet being available. If the SEC gives the nod, expect these to be available in a matter of days. 

Gensler has made his concerns clear, outlining the case against investment in crypto including fraudulent schemes and volatility. But the US — and the regulator — is hampered by the failure to agree the sort of overarching rules that Europe and the UK are putting in place. Europe’s Markets in Crypto-Assets Regulation aims to reduce the likelihood of scams in part by requiring users to supply identifying information.

Crypto-curious US investors who hope mainstream products will safeguard their money may be disappointed. Without drastic change, it is not obvious that regulators can solve the problems inherent in a system that prizes anonymity.