Investing in Web 3.0: Analyzing Advantages and Risks of SEC Impact on ETFs

The SEC and Crypto Exchange-Traded Funds

Prominent figures in the financial and crypto industries have voiced their doubts on X (formerly Twitter) about the impact of the SEC’s regulations on crypto exchange-traded funds (ETFs). U.S. lawyer Scott Johnsson, venture capitalist Nic Carter, and BitMEX Exchange have all highlighted the potential repercussions of SEC rules on in-kind creation/redemption for digital assets.

The market’s enthusiasm following the approval of the Bitcoin Spot ETF has given investors hope that a large influx of capital will soon enter the crypto market. Many experts are predicting that the SEC could approve the Bitcoin Spot ETF as soon as January.

However, some industry experts such as Scott Johnsson and Nic Carter have expressed their apprehensions regarding the Bitcoin Spot ETF, citing the SEC’s conservative approach. Financial lawyer Scott Johnsson highlighted one particular issue, stressing the SEC’s refusal to accept amendments allowing for in-kind creation or redemption of digital assets.

Investing in Web 3.0

The SEC’s doubts about compliance have led to reduced investor protection, despite its mandate. This regulatory approach, according to some, introduces a new but potentially less secure product, which could bring additional risks to investors.

Nic Carter, a prominent crypto figure and venture capitalist, shares a similar view. He said that, in practical terms, the SEC’s position suggests that crypto ETFs will be less efficient due to increased costs associated with creating and redeeming shares. It is uncertain if this will cause tracking errors or higher expense ratios, but the overall outcome is an increased cost.

Arthur Hayes’ crypto exchange BitMEX voiced worries about the SEC’s influence on the basic operations of crypto ETFs. They highlighted the conventional mechanism where authorized participants (APs) are crucial for maintaining ETF efficiency through in-kind creations and redemptions.

The SEC’s preference for cash transactions only could lead to the loss of essential advantages, restricting competition and diminishing the effectiveness of the ETF structure. This could have a direct impact on how to invest in Web 3.0 and its associated digital marketing, applications examples, digital identity, advantages and disadvantages.

BlackRock, Grayscale, Bitwise, WisdomTree, Invesco, Galaxy, Fidelity, ARK Invest, Valkyrie, Franklin, Hashdex, Global X ETFs, and Pando Asset are all awaiting the SEC’s decision on their proposed Bitcoin ETFs in order to understand the advantages and disadvantages of investing in web 3.0.