SEC Commissioner Grilled on Bitcoin ETFs as Senators Weigh U.S. Regulator Nominees

Commissioner Caroline Crenshaw of the U.S. Securities and Exchange Commission (SEC) told senators on Thursday that rampant fraud in crypto markets left her unwilling to approve bitcoin exchange traded products earlier this year.

In a nomination hearing before the Senate Banking Committee, Crenshaw and others seeking Senate confirmations defended their records. Crypto issues received only minimal attention, including in the questioning of Crenshaw as she seeks another SEC term.

In January, after the SEC lost a court battle with Grayscale and reversed its position on bitcoin spot exchange traded funds (ETFs), Crenshaw maintained her opposition to those trading products, which she pointed out aren’t technically ETFs but are exchange traded products (ETPs) that operate under different rules. The commissioner said that the agency’s approval of the bitcoin (BTC) products would “put us on a wayward path that could further sacrifice investor protection.”

In weighing whether it was in the public interest, she reiterated on Thursday that she felt she had to oppose it “given the significant fraud in the underlying spot markets globally, given the opacity.”

“I am concerned that these products will flood the markets and land squarely in the retirement accounts of U.S. households who can least afford to lose their savings to the fraud and manipulation that appears prevalent in the spot bitcoin markets and will impact the ETPs,” Crenshaw had argued in January. Her agency is now in the process of similarly approving trading products for Ethereum’s ether (ETH).

The committee also heard testimony Thursday from Christy Goldsmith Romero, the member of the Commodity Futures Trading Commission (CFTC) who President Joe Biden tapped to chair the Federal Deposit Insurance Corp.; Kristin Johnson, another CFTC commissioner, to be the Treasury Department’s assistant secretary for financial institutions; and Hawaii Insurance Commissioner Gordon Ito to be a Member of the Financial Stability Oversight Council.

Crenshaw has been a commissioner at the SEC since being sworn in four years ago, having been unanimously confirmed in the Senate. In that tenure, she’s backed the approach to the digital assets sector led by SEC Chair Gary Gensler, who has maintained a view that crypto tokens should mostly be approached as securities that must be registered with the agency.

This round of four nominations for financial regulatory positions is especially significant for the CFTC, which would lose two Democratic members if their appointments are confirmed. It’s uncertain how effective that agency – key to digital assets oversight and enforcement – will be if it loses two of its five commissioners and leaves Chair Rostin Behnam as the only Democrat appointee.

The nomination process for financial watchdogs requires approval initially in this committee, then a vote by the entire Senate.

Thursday’s hearing also briefly raised the question of the custody of digital assets at U.S. banks. Sen. Cynthia Lummis (R-Wyo.) asked Goldsmith Romero about her view on banks handling customers’ cryptocurrency and doing other business with digital assets firms.

“I don’t think it’s the FDIC’s role to tell banks what industries or companies banks should be providing services to,” the commissioner responded.