SEC Shrinks Crypto Enforcement Unit; BlackRock's Bitcoin ETF Gets SEC Nod for In-Kind Redemptions

The U.S. Securities and Exchange Commission (SEC) is reportedly downsizing a special unit of more than 50 lawyers and staff members tasked to bring crypto enforcement actions. According to The New York Times, a leading lawyer in the unit was reassigned, and some members were moved to other departments within the agency. The crypto enforcement unit was established during the Trump administration but grew significantly under former SEC chair Gary Gensler, who initiated a crackdown on the U.S. crypto industry. The unit has brought over 100 crypto-related actions during the Biden administration, including a case involving Coinbase, which is charged with violating federal securities laws by operating an unregistered platform.

The SEC is also evaluating a proposal to modify BlackRock’s spot Bitcoin ETF, potentially enhancing market mechanics. The proposal to allow in-kind redemptions could signify a major shift in how exchange-traded funds (ETFs) operate, particularly in the cryptocurrency sphere. Individual investors will not benefit from in-kind transactions directly, as these will be limited to authorized participants. The SEC is reviewing BlackRock’s proposed changes to its spot Bitcoin ETF, which could impact the structure and function of crypto exchange-traded funds.

A Wall Street watchdog group, Better Markets, has defended U.S. regulators' approach to crypto firms. In a written statement, the group criticized the narrative from some lawmakers and crypto industry leaders that certain financial regulators are targeting crypto companies. Better Markets banking policy director Shayna Olesiuk argued that the Federal Deposit Insurance Corporation (FDIC) was responding to fintech companies making false and misleading statements about deposit insurance coverage. Olesiuk suggested that if banks were required to specify the reason for an account closure, there would be less chance of misunderstanding or jumping to conclusions about malicious intent or discrimination when an account is closed.

The SEC has approved BlackRock’s Bitcoin ETF application for asset-backed redemptions. The approval allows asset-backed redemptions for BlackRock’s Bitcoin ETF, which could enhance market mechanics and potentially stabilize prices for the underlying asset, Bitcoin. This change could benefit authorized participants who facilitate trades between the ETF and the Bitcoin market, though retail investors will not be able to participate in this aspect. The adoption of in-kind redemptions could set the groundwork for a more robust market structure, potentially leading to lower expense ratios and improved market efficiencies.