SEC probes cybersecurity breach amid Bitcoin ETF approval rumours

The US Securities and Exchange Commission (SEC) faced a major cybersecurity breach and public trust fallout on January 9, after its social media account was hacked to falsely announce the approval of spot Bitcoin exchange-traded funds (ETFs), according to a report by Bloomberg.

Hackers briefly took control of the SEC's X account and posted a statement claiming the agency had greenlit the long-awaited products, causing a temporary price surge in Bitcoin. The incident sparked an investigation by US authorities and renewed criticism of the SEC's cybersecurity and stance on cryptocurrencies, the report added.

A highly anticipated decision by the US Securities and Exchange Commission on whether to approve a spot Bitcoin exchange-traded fund quickly morphed into a major cybersecurity incident on January 9.

Soon after the SEC's X account was hacked, a fake announcement claimed the agency's approval of plans for certain products. This misinformation briefly pumped the price of the world's largest cryptocurrency and prompted U.S. authorities to launch an investigation into the breach of a social media account belonging to Wall Street's primary regulator.

Followed by the SEC assuring collaboration with law enforcement for an investigation, confirming the termination of unauthorized access, and disavowing the post as not originating from the SEC or its staff. Gensler separately clarified that no decision regarding ETFs had been reached, the report added.

The SEC disclosed unapproved activity on the @SECGov X account "by an unknown party for a brief period shortly after 4 pm ET" in January, the Bloomberg reported. Following the removal of the false post, Joe Benarroch, head of business operations at X, announced the account's security and ongoing root cause investigation.

In the backdrop of this incident, approximately a dozen companies have sought approval to list Bitcoin-backed ETFs in the U.S. The SEC has until Jan. 10 to act on at least one of these applications, leading to speculation among crypto insiders that a series of decisions might be announced around that date.

Before a spot-backed Bitcoin ETF can commence trading, two technical requirements must be met. Firstly, the SEC must approve the 19b-4 filings from the exchanges intending to list the ETFs. Secondly, the regulator must endorse the relevant S-1 forms, and the registration applications from potential issuers, including major entities like BlackRock Inc. and Fidelity.

Reports suggested the SEC is planning to vote on the exchanges' filings, the 19b-4s, this week, with potential action on the issuers' applications, the S-1s, occurring around the same time. If the SEC grants both sets of required approvals, the ETFs could start trading as early as the next business day, as per the report.

Despite past refusals under Gensler and his predecessor Jay Clayton, who cited investor protection and market manipulation concerns, speculation has risen since the SEC's legal setback against Grayscale Investments in August. This has led to expectations that the regulator may yield to the growing demand for a Bitcoin ETF, the report further explained.

This development came after the CEO of Ark Investment Management, Cathie Wood, shared her view on the potential spot bitcoin exchange-traded fund (ETF) approvals by the U.S. Securities and Exchange Commission (SEC) in an interview with CNBC. Her firm’s joint proposal with 21 shares was up for a decision on January 10, the first deadline for spot bitcoin ETF applications this year.