Former SEC Official Warns Spot Bitcoin ETFs Will Create ‘Wall Street Fee-Sucking Scam of Epic Proportions’

December 28, 2023 | by


John Reed Stark, the former head of internet enforcement at the U.S. Securities and Exchange Commission (SEC), has issued a warning about spot bitcoin exchange-traded funds (ETFs), stating that they will create a “Wall Street fee-sucking scam of epic proportions.” As the president of cybersecurity firm John Reed Stark Consulting and with 15 years of experience as an SEC enforcement attorney, Stark expressed his skepticism about the approval of spot bitcoin ETFs, calling them a centralized crypto contraption and emphasizing the potential for investor exploitation. The SEC is currently reviewing 13 applications for spot bitcoin ETFs, and Stark believes the approval of some form of bitcoin spot ETF is likely, despite his reservations.

Former SEC Official Warns Spot Bitcoin ETFs Will Create ‘Wall Street Fee-Sucking Scam of Epic Proportions’

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Ex-SEC Official’s Spot Bitcoin ETF Warnings

Former U.S. Securities and Exchange Commission (SEC) official John Reed Stark has raised significant concerns about the potential introduction of spot bitcoin exchange-traded funds (ETFs). In a recent social media post on X platform, Stark emphasized the dangers of these ETFs, warning of the creation of a “Wall Street fee-sucking investor scam of epic proportions.” As the former head of internet enforcement at the SEC, Stark brings valuable insights to the conversation surrounding spot bitcoin ETFs. His remarks shed light on the centralization concerns associated with these financial instruments and raise doubts about their viability.

Spot Bitcoin ETFs as Fee-Sucking Scams

Stark’s main concern regarding spot bitcoin ETFs centers around the potential for them to become fee-sucking scams. Spot ETFs are investment vehicles designed to track the price of an underlying asset, in this case, bitcoin. However, Stark argues that the structure of these ETFs may lead to excessive fees imposed on investors by Wall Street. This scenario creates a worrisome situation where investors bear the brunt of unnecessary costs without commensurate benefits.

Centralization Concerns with Spot Bitcoin ETFs

Another issue Stark highlights is the alarming level of centralization that spot bitcoin ETFs could introduce to the crypto market. Bitcoin, known for its decentralized nature, may lose its core principles if concentrated in the hands of a few Wall Street entities. This concentration of power raises questions about the integrity of the cryptocurrency ecosystem and the potential for manipulation. Stark’s concerns shed light on the need to carefully consider the implications of spot bitcoin ETFs before rushing into their approval.

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The Current Status of Spot Bitcoin ETFs

Number of Applications for Spot Bitcoin ETFs

Currently, the SEC is reviewing 13 applications for spot bitcoin ETFs. The increasing interest in these financial instruments reflects the growing demand for regulated exposure to cryptocurrencies in traditional financial markets. The number of applications indicates the industry’s efforts to bridge the gap between digital assets and institutional investors.

Meetings between SEC and Spot Bitcoin ETF Issuers

To gain a comprehensive understanding of the proposed spot bitcoin ETFs, the SEC has been engaging in meetings with the applicants. These discussions provide an opportunity for the regulators to assess the potential benefits and risks associated with spot bitcoin ETFs. By engaging in dialogue with the issuers, the SEC aims to make an informed decision that takes into account various perspectives.

The SEC’s Request for Amendments

During the meetings, the SEC requested the applicants to make amendments to their spot bitcoin ETF filings. These amendments are instrumental in improving the transparency, security, and overall robustness of the proposed ETFs. The SEC’s request for amendments demonstrates its commitment to thorough due diligence and its intention to ensure that any approved spot bitcoin ETF meets the necessary regulatory standards.

The Cash Creation Method vs In-Kind Creation Method

One significant point of contention between the SEC and spot bitcoin ETF issuers is the creation method. The cash creation method involves the creation of new shares in the ETF through the use of cash investments. In contrast, the in-kind creation method allows for the creation of new shares through the transfer of actual bitcoin. The SEC has expressed a preference for the cash creation method, pushing back against the in-kind creation method, which is favored by some applicants, including Blackrock.

Predictions and Speculations

Likelihood of SEC Approval for Spot Bitcoin ETFs

With the growing interest and discussions surrounding spot bitcoin ETFs, the inevitability of SEC approval seems likely. Stark, drawing from his extensive experience, predicts that the SEC will ultimately approve an iteration of a bitcoin spot ETF. While the approval of spot bitcoin ETFs may seem contrary to the principles of decentralization and cryptocurrency, Stark speculates that it may become a prominent aspect of SEC Chair Gary Gensler’s legacy. These predictions highlight the potential shift occurring within the regulatory landscape and the increasing acceptance of cryptocurrencies in mainstream finance.

The Potential Legacy of SEC Chair Gary Gensler

Stark’s statements raise questions about the potential legacy of SEC Chair Gary Gensler. As someone well-versed in the world of cryptocurrencies and blockchain technology, Gensler’s actions and decisions during his tenure will leave a lasting impact. If spot bitcoin ETFs become a primary talking point in Gensler’s legacy, it could signify a notable shift in the regulatory approach to the crypto industry.

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Stark’s warnings and concerns regarding spot bitcoin ETFs have ignited discussions and debate within the cryptocurrency community. While there are opinions on both sides of the argument, it is crucial to acknowledge the potential risks and benefits associated with introducing these financial instruments. The public response to Stark’s warnings has been varied, with some individuals sharing his concerns about centralization and excessive fees, while others view spot bitcoin ETFs as a necessary step toward mainstream adoption.

The ongoing discussions and meetings between the SEC and spot bitcoin ETF issuers indicate a commitment to thoroughly assess the potential implications of these products. As the regulatory landscape continues to evolve, it is essential for market participants, regulators, and investors to engage in informed conversations that consider the long-term consequences of introducing spot bitcoin ETFs. Only through careful analysis and thoughtful decision-making can the industry strike a balance between innovation, investor protection, and market integrity.

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