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Bitcoin Spot ETFs Suffer New Blow as U.S Government Shutdown Looms

Published September 26, 2023 11:32 AM
James Morales
Published September 26, 2023 11:32 AM
Key Takeaways
  • A looming government shutdown threatens to further delay the SEC’s decision on spot bitcoin ETFs.
  • Without funding, key US regulators will furlough the majority of their staff.
  • Both the SEC and the CFTC may be forced to take a break from enforcement actions.

Unless lawmakers can broker a deal to pass key spending bills for the coming financial year, the US government is on course to shut down on October 1. But what could the potential shutdown mean for the American crypto sector?

If Congress can’t approve funding, government agencies like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) could grind to a halt. 

For US crypto firms, a government shutdown could therefore frustrate an already challenging relationship with regulators and delay a long-awaited SEC decision on spot Bitcoin Exchange Traded Funds (ETFs).

Bitcoin ETF Decision Could be Postponed Again

After the SEC initially rejected Grayscale’s Bitcoin ETF applications, when a court ordered the regulator to review its decision, many in the crypto sector declared victory.

With the SEC due to make a decision on 7 Bitcoin ETFs in October, the agency’s former Chair Jay Clayton even went as far as saying “an approval is inevitable”.

But just as it seemed an end was in sight, the government’s budget impasse threatens to drag the issue out even longer.

“The public should understand, we’ll largely be a skeletal staff,” he added. “The normal oversight we have on markets will not be possible.”

Commenting on a potential government shutdown, SEC Chairman Gary Gensler said  the agency will be forced to operate with “skeletal staff” if its funding is suspended. In the worst-case scenario, he said the SEC would not be able to review filings submitted by companies.

“The normal oversight of markets will not be possible […] for however many days,” he added.

Regulatory Enforcement Could be Suspended During Government Shutdown

Although few will relish the prospect of further delays to the SEC’s Bitcoin ETF decisions, a government shutdown could give the crypto sector some time to breathe.

Following a stream of enforcement actions throughout 2023, both the SEC and the CFTC have doubled down on litigation specifically targeting the crypto sector.

But during a government shutdown, the time-consuming and expensive work of enforcement falls to the bottom of regulators’ priorities. 

For instance, in their respective contingency plans , both the SEC and the CFTC state that all employees will be furloughed except those whose work is deemed “necessary to protect life and property.” 

For firms that are currently battling regulators in court, would it be such a bad thing if government lawyers are forced to take a break?

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