6 ms·

Grayscale was unreasonably denied its Bitcoin ETF, court rules

72 points by resalisbury 3y ago

hn_throwaway_99 3y ago
I'm about as "anti crypto" as they come, and I find the whole need/purpose for a Bitcoin spot ETF to be completely baffling (and I suspect most actual crypto enthusiasts would agree), but this seems like the right decision to me. I specifically agreed with this comment: "The SEC has been getting blasted for its regulation-by-enforcement approach to crypto." I understand the SEC's hostility to crypto, but what I don't understand is why they can't just provide clearer rules, up front, about what is OK and what is not, instead seeming to explicitly not provide clear guidance and then saying to companies after the fact "no no, that's too far" (in some cases - other cases were clearly fraudulent BS from the get go). I'm not a lawyer, and haven't been following the ins and outs of all of the crypto-SEC battles super closely, but I'd be curious if someone with more knowledge in the domain could comment on why the SEC hasn't been more proactive in defining rules.
- drcongo 3y ago
  My guess would be they don't have anyone in-house who understands it all well enough to write clear guidance.
  - divs1210 3y ago
    The SEC chief is Gary Gensler who used to teach a Cryptocurrency course at Harvard...
    - deleted 3y ago
      [deleted]
    - drcongo 3y ago
      Oh! Then my guess was terrible!
- f001 3y ago
  Re: existence of an ETF, it’s the only way to “hold” BTC (or ETH) in an account with tax advantages (such as TFSA or RRSP in Canada, equivalent to Roth IRA and 401K in the US respectively).
  - andy81 3y ago
    Why would a government want to subsidise cryptocurrency with tax advantages? Proponents think it will collapse the dollar and bankrupt all governments. Opponents think it's negative-sum and the sooner cryptocurrency dies the better for industries that actually create value. Either way it's a (mild) attack on effective government and civilization more generally. The less subsidies for traders the better, from the perspective of a currently-influential government.
    - matthewdgreen 3y ago
      I think the argument is that if the government does not want to extend this subsidy to certain assets, Congress can pass laws excluding them. The current set of laws doesn’t necessarily give the SEC the authority to unilaterally decide broad questions about which types of assets are “bad for society,” and the SEC has to work within the legal framework it was given. But obviously I’m not a lawyer.
  - hn_throwaway_99 3y ago
    At least in the US, this is just false. It's definitely possible to hold Bitcoin (and other property) in an IRA.
- shrimpx 3y ago
  SEC keeps insisting that “the law is clear” and they’re just enforcing the law. That their job isn’t to explain the law to people, or how exactly to behave to not break the law. Their approach is “if we think you’re breaking the law we will take action, and things will get hashed out in the courts.” It makes sense that the SEC probably does not have the resources to explain to anyone engaging in any securities activity exactly how to behave, but crypto is untrodden ground and they could have provided more guidance there.
  - mcpackieh 3y ago
    The SEC's position seems eminently reasonable to me. It's not the government's job to give free legal consultation for how to skirt the law. I could call up my local district attorney and ask him to explain the nuanced minutiae of the law as he understands it so that I can skirt around that in some clever way, but I expect he would refuse to answer my questions and rightfully so. If I want that kind of advice, I have to hire my own lawyer. Cryptobros can't seriously expect anything different, so these complaints are just political theater to prod lawmakers into acting (e.g. explicitly legalizing their schemes.)
    - novok 3y ago
      I see you have no experience with actually dealing with regulatory law and how stupid and vague it can get
      - mcpackieh 3y ago
        I'm well aware of how vague and stupid regulatory laws can get. And I know that the government only provides clarity when they deign to do so, I'm not entitled to it. I can write a letter to the ATF asking if my shoestring with two loops tied in it counts as a machine gun if I also own a certain rifle, or if I only own certain parts of that rifle, or if I sell it to a guy who owns that rifle; they might respond but maybe not. (As a matter of fact they have made public statements concerning such shoestrings, but only because they chose to.)
- fjalakgneixow 3y ago
  a other reason to hold spot ETF, it is another way to hold crypto custodially and might give you a way to bet on Bitcoin without fear of a wrench attack
  - googlryas 3y ago
    Wouldn't the wrench attack in this instance just make you type your password to your broker, sell the ETF, and then transfer the money to some third party bank account?
    - tmn 3y ago
      This is already the case for the majority of asset (stock or bond) wealth. The threshold to pull this off is way higher than simply getting a private key or hardware key device off someone. In the first case there are many controls to halt or prevent this sort of thing. In the second, if the perp gets the key, they've won.
    - FlyingAvatar 3y ago
      You have some possible recourse if someone steals your securities without your authorization. The reason why it's more appealing for criminals to do it with crypto is that claw-backs are essentially impossible.
- daxelrod 3y ago
  This is how a fintech Chief Compliance Officer explained it to me: The industry that the SEC regulates is full of clever people who have a financial incentive to push rules as far as possible. The concern is that if they provided a clear line between what is allowed and disallowed, that everyone will go right up to the line and then find creative ways to exploit how it’s defined. The SEC prefers to keep the line fuzzy so that actors keep their behavior well on the “allowed” side.
  - kelthuzad 3y ago
    If the line is intentionally fuzzy it doesn't make sense for them to lie about how the line is supposedly clear, because lying tends to diminish the trust and credibility of the SEC. I still don't buy this explanation regardless, because it makes navigating the space impossible.
    - mrguyorama 3y ago
      It's weird, because that line has been in place for decades, and the financial industry has mostly had no problems complying, yet a bunch of script kiddies trying to get rich are finding it oh so difficult to stay on the right side of the line? Ain't that just the darndest thing.
      - kelthuzad 3y ago
        The line seems to be unclear and fuzzy as stated by others, which will naturally cause problems with compliance, but you clearly have a personal axe to grind so I'm not gonna entertain that.
  - noman-land 3y ago
    This sounds like a ploy to justify selective enforcement against whoever the regulators don't like at any given moment.
    - mrguyorama 3y ago
      Sure, vague rules allow misdeeds through enforcement, but luckily we have the court system to police that. Meanwhile, vague rules allow the SEC to target the bad behavior, and not have to constantly be begging the legislature for new laws every time someone comes up with a new grift. It's basically "unsportsmanlike conduct" for the financial system. The NFL doesn't tell you exactly how hard you have to push the other guy before it counts as unsportsmanlike conduct, because that would be stupid, extremely context sensitive, and only help players push each other around more. It's up to you as a player to actively stay on the right side of the fuzzy line for that exact reason. Every person on here who works in tech should understand how stupid "no the rules need to be clear" is when it comes to bad actors and adversarial systems. Imagine if it was expected for you to clearly explain to a user who failed your internal risk system what caused them to fail, so that they can fix it and try again. Imagine if you were asked to implement a system that explained clearly to your users what would get blocked as "carding behavior". It's clear to those who have built or worked with these kind of systems how utterly stupid and self defeating such an endeavor would be. There isn't even an unambiguously correct definition of "Fraud" in the first place!

72 points by resalisbury 3y ago

I'm about as "anti crypto" as they come, and I find the whole need/purpose for a Bitcoin spot ETF to be completely baffling (and I suspect most actual crypto enthusiasts would agree), but this seems like the right decision to me. I specifically agreed with this comment: "The SEC has been getting blasted for its regulation-by-enforcement approach to crypto." I understand the SEC's hostility to crypto, but what I don't understand is why they can't just provide clearer rules, up front, about what is OK and what is not, instead seeming to explicitly not provide clear guidance and then saying to companies after the fact "no no, that's too far" (in some cases - other cases were clearly fraudulent BS from the get go). I'm not a lawyer, and haven't been following the ins and outs of all of the crypto-SEC battles super closely, but I'd be curious if someone with more knowledge in the domain could comment on why the SEC hasn't been more proactive in defining rules.

drcongo 3y ago
My guess would be they don't have anyone in-house who understands it all well enough to write clear guidance.
- divs1210 3y ago
  The SEC chief is Gary Gensler who used to teach a Cryptocurrency course at Harvard...
  - deleted 3y ago
    [deleted]
  - drcongo 3y ago
    Oh! Then my guess was terrible!
f001 3y ago
Re: existence of an ETF, it’s the only way to “hold” BTC (or ETH) in an account with tax advantages (such as TFSA or RRSP in Canada, equivalent to Roth IRA and 401K in the US respectively).
- andy81 3y ago
  Why would a government want to subsidise cryptocurrency with tax advantages? Proponents think it will collapse the dollar and bankrupt all governments. Opponents think it's negative-sum and the sooner cryptocurrency dies the better for industries that actually create value. Either way it's a (mild) attack on effective government and civilization more generally. The less subsidies for traders the better, from the perspective of a currently-influential government.
  - matthewdgreen 3y ago
    I think the argument is that if the government does not want to extend this subsidy to certain assets, Congress can pass laws excluding them. The current set of laws doesn’t necessarily give the SEC the authority to unilaterally decide broad questions about which types of assets are “bad for society,” and the SEC has to work within the legal framework it was given. But obviously I’m not a lawyer.
- hn_throwaway_99 3y ago
  At least in the US, this is just false. It's definitely possible to hold Bitcoin (and other property) in an IRA.
shrimpx 3y ago
SEC keeps insisting that “the law is clear” and they’re just enforcing the law. That their job isn’t to explain the law to people, or how exactly to behave to not break the law. Their approach is “if we think you’re breaking the law we will take action, and things will get hashed out in the courts.” It makes sense that the SEC probably does not have the resources to explain to anyone engaging in any securities activity exactly how to behave, but crypto is untrodden ground and they could have provided more guidance there.
- mcpackieh 3y ago
  The SEC's position seems eminently reasonable to me. It's not the government's job to give free legal consultation for how to skirt the law. I could call up my local district attorney and ask him to explain the nuanced minutiae of the law as he understands it so that I can skirt around that in some clever way, but I expect he would refuse to answer my questions and rightfully so. If I want that kind of advice, I have to hire my own lawyer. Cryptobros can't seriously expect anything different, so these complaints are just political theater to prod lawmakers into acting (e.g. explicitly legalizing their schemes.)
  - novok 3y ago
    I see you have no experience with actually dealing with regulatory law and how stupid and vague it can get
    - mcpackieh 3y ago
      I'm well aware of how vague and stupid regulatory laws can get. And I know that the government only provides clarity when they deign to do so, I'm not entitled to it. I can write a letter to the ATF asking if my shoestring with two loops tied in it counts as a machine gun if I also own a certain rifle, or if I only own certain parts of that rifle, or if I sell it to a guy who owns that rifle; they might respond but maybe not. (As a matter of fact they have made public statements concerning such shoestrings, but only because they chose to.)
fjalakgneixow 3y ago
a other reason to hold spot ETF, it is another way to hold crypto custodially and might give you a way to bet on Bitcoin without fear of a wrench attack
- googlryas 3y ago
  Wouldn't the wrench attack in this instance just make you type your password to your broker, sell the ETF, and then transfer the money to some third party bank account?
  - tmn 3y ago
    This is already the case for the majority of asset (stock or bond) wealth. The threshold to pull this off is way higher than simply getting a private key or hardware key device off someone. In the first case there are many controls to halt or prevent this sort of thing. In the second, if the perp gets the key, they've won.
  - FlyingAvatar 3y ago
    You have some possible recourse if someone steals your securities without your authorization. The reason why it's more appealing for criminals to do it with crypto is that claw-backs are essentially impossible.
daxelrod 3y ago
This is how a fintech Chief Compliance Officer explained it to me: The industry that the SEC regulates is full of clever people who have a financial incentive to push rules as far as possible. The concern is that if they provided a clear line between what is allowed and disallowed, that everyone will go right up to the line and then find creative ways to exploit how it’s defined. The SEC prefers to keep the line fuzzy so that actors keep their behavior well on the “allowed” side.
- kelthuzad 3y ago
  If the line is intentionally fuzzy it doesn't make sense for them to lie about how the line is supposedly clear, because lying tends to diminish the trust and credibility of the SEC. I still don't buy this explanation regardless, because it makes navigating the space impossible.
  - mrguyorama 3y ago
    It's weird, because that line has been in place for decades, and the financial industry has mostly had no problems complying, yet a bunch of script kiddies trying to get rich are finding it oh so difficult to stay on the right side of the line? Ain't that just the darndest thing.
    - kelthuzad 3y ago
      The line seems to be unclear and fuzzy as stated by others, which will naturally cause problems with compliance, but you clearly have a personal axe to grind so I'm not gonna entertain that.
- noman-land 3y ago
  This sounds like a ploy to justify selective enforcement against whoever the regulators don't like at any given moment.
  - mrguyorama 3y ago
    Sure, vague rules allow misdeeds through enforcement, but luckily we have the court system to police that. Meanwhile, vague rules allow the SEC to target the bad behavior, and not have to constantly be begging the legislature for new laws every time someone comes up with a new grift. It's basically "unsportsmanlike conduct" for the financial system. The NFL doesn't tell you exactly how hard you have to push the other guy before it counts as unsportsmanlike conduct, because that would be stupid, extremely context sensitive, and only help players push each other around more. It's up to you as a player to actively stay on the right side of the fuzzy line for that exact reason. Every person on here who works in tech should understand how stupid "no the rules need to be clear" is when it comes to bad actors and adversarial systems. Imagine if it was expected for you to clearly explain to a user who failed your internal risk system what caused them to fail, so that they can fix it and try again. Imagine if you were asked to implement a system that explained clearly to your users what would get blocked as "carding behavior". It's clear to those who have built or worked with these kind of systems how utterly stupid and self defeating such an endeavor would be. There isn't even an unambiguously correct definition of "Fraud" in the first place!