Understanding Why the SEC Can Approve or Reject Crypto ETFs and How to Compare Bitcoin, Stocks, Bonds, and Commodities?

Understanding why the SEC can approve or reject crypto ETFs, the truly useful aspect is not just determining whether a product can be listed, but helping investors see clearly: an ETF is a regulated securities product wrapper, and the underlying assets themselves still have their own risk and return logic. When comparing Bitcoin, stocks, bonds, and commodities together, if one only asks "which one has risen more," it is easy to overlook more fundamental issues such as regulatory structure, valuation basis, cash flow, custody methods, and market liquidity.

Clarifying First: The SEC Reviews ETF Product Structures, Not Selecting Assets for Investors

When the U.S. Securities and Exchange Commission (SEC) reviews an ETF or ETP for listing on an exchange, it typically focuses on whether securities market rules can protect investors, whether there is sufficient information disclosure, whether there are mechanisms to prevent fraud and manipulation, and whether exchange rule changes comply with relevant legal requirements. For spot crypto asset-related products, controversies often center on whether the underlying market is susceptible to manipulation, whether there is a monitorable link between the spot market and the regulated derivatives market, whether custody arrangements are clear, and whether fund valuation and creation/redemption mechanisms are sufficiently transparent.

This means that the SEC approving a product for listing does not mean it believes Bitcoin will definitely rise, nor does it place Bitcoin at the same risk level as stocks or bonds. Conversely, the SEC rejecting a product does not necessarily represent a denial of the long-term value of the underlying technology or asset, but may indicate that the application documents, market monitoring, exchange rules, or investor protection arrangements are insufficient.

A simple example to understand: with "gold," investors can purchase physical gold bars, gold futures, gold ETFs, or gold mining company stocks. When regulators approve gold ETFs for exchange trading, the focus is on fund disclosure, custody, valuation, and trading rules, not a promise that gold prices will rise. Crypto ETFs follow similar logic, except the underlying market is younger, trading venues are more dispersed, and on-chain transfers and private key custody add additional complexity.

Comparison Dimensions: Ask Seven Questions First, Rather Than Looking at Return Curves First

When placing Bitcoin, stocks, bonds, and commodities in one table, the most practical comparison method starts from "how assets generate or carry value," rather than from short-term price fluctuations. Below is an actionable checklist:

1. What is the source of returns: corporate earnings, bond coupons, commodity supply and demand, or network consensus and scarcity expectations?
2. Where does volatility come from: business cycles, interest rate changes, credit risk, inventory cycles, leverage liquidation, or regulatory and liquidity shocks?
3. Is trading and exit easy: what is market depth, does the bid-ask spread widen in extreme conditions, are there trading time restrictions?
4. Is there cash flow: can it be valued using discounted cash flow, coupons, dividends, or rent?
5. Sensitivity to inflation and interest rates: how does price change when real interest rates rise?
6. What is the correlation with existing portfolios: does it diversify normally, or does it fall synchronously during crises?
7. What is the custody and access path: securities account, futures account, fund shares, on-chain wallet, or cold storage?

None of these questions can be answered in isolation. For example, Bitcoin can trade globally 7×24 hours, but this does not mean equal depth at any given time; stocks have corporate cash flows, but may still experience prolonged drawdowns when valuations are high; bonds have coupons, but can be significantly affected by interest rates when duration is too long; commodities appear inflation-resistant, but inventory, transportation, substitutes, and seasonality vary greatly across different commodities.

Returns and Volatility: High Return Expectations Usually Come with Wider Outcome Ranges

Stocks' long-term returns typically come from corporate earnings growth, dividend distributions, and valuation changes. Broad-based stock indices diversify single-company operating risks but remain affected by economic cycles, interest rate levels, industry structure, and market sentiment. Stock volatility may be lower than that of individual crypto assets, but significant drawdowns can still occur during financial crises, earnings recessions, or valuation contractions.

Bonds have clearer sources of returns: coupons, principal repayment at maturity, and price fluctuations from interest rate changes. Short-duration, high-credit-quality bonds typically have lower volatility; long-duration bonds are more sensitive to interest rates; high-yield bonds are closer to credit risk assets. Bonds are not equivalent to "risk-free"; their risk structure simply differs from stocks and Bitcoin.

Commodity return logic typically does not rely on corporate cash flows but relates to supply and demand, inventory, production costs, geopolitical events, weather, transportation, and futures curve structure. Differences among energy, precious metals, agricultural products, and industrial metals are significant. When holding commodity ETFs or futures-based products, attention must also be paid to roll yields or decay; one cannot simply interpret "spot price changes" as investment returns.

Bitcoin's sources of returns are harder to explain with traditional models. It has no dividends, coupons, or legal payment obligations; its price is more determined by scarcity narratives, network adoption, macro liquidity, risk appetite, exchange liquidity, derivatives leverage, and regulatory expectations. Its historical volatility and drawdowns are typically significantly higher than most traditional asset classes, so even with a long-term bullish view, one must acknowledge that the holding process may be very uneven.

A common misconception is to interpret "past high returns" directly as "future compensation is sufficient." A more robust approach is to simultaneously examine annualized volatility, maximum drawdown, duration of declines, concentration of gains, and extreme daily returns. For highly volatile assets, position sizing is often more important than directional judgment.

Liquidity and Trading Hours: Being Able to Trade Does Not Equal Being Able to Exit at Low Cost

Stocks and bonds typically trade during specific trading sessions. Large stocks and major ETFs have good depth, but small-cap stocks, sector ETFs, or credit bonds in stressed markets may see widening spreads. The bond market especially requires attention: many bonds do not trade continuously on centralized exchanges like stocks; actual transaction prices, quote transparency, and trading costs vary by instrument.

Commodity liquidity depends on the specific category and investment vehicle. Front-month futures contracts may be active, but far-month contracts, certain commodity ETFs, or niche commodity markets may not be. Under extreme supply-demand shocks, commodity prices may jump, and margin requirements may also adjust.

One notable feature of Bitcoin is its global, 7×24-hour trading. For investors, this is both an advantage and a pressure: violent fluctuations can occur on weekends and holidays; prices across exchanges may temporarily diverge; forced liquidations and funding rate changes in derivatives markets can amplify short-term volatility. For ETF investors, note that fund shares typically trade during securities exchange hours, while the underlying Bitcoin market operates continuously, so opening gaps, premiums/discounts, or market-making pressure may occur.

Therefore, when comparing liquidity, one cannot look only at "daily trading volume." Finer checks include: bid-ask spread, market depth, trade quality in extreme conditions, fund premium/discount, creation/redemption mechanisms, market-maker stability, trading time mismatches, and whether there are redemption, suspension, or trading restrictions.

Cash Flow and Valuation: Assets Without Cash Flow Rely More on Narrative, Scarcity, and Market Pricing

Stocks can be valued using metrics such as price-to-earnings ratio, price-to-sales ratio, free cash flow yield, and dividend yield. Although these metrics cannot predict short-term prices, they at least provide a discussion framework: how much an enterprise can earn in the future and how many multiples investors are willing to pay for those cash flows.

Bond valuation relies more on yield, term structure, credit spread, and default probability. Investors can decompose bond prices into risk-free rate, credit compensation, liquidity compensation, and term premium. Bonds' advantage lies in relatively clear contractual cash flows; their limitation is that issuers may default and interest rate changes affect holding-period prices.

Commodities typically have no endogenous cash flow. Valuation of precious metals such as gold is often linked to real interest rates, U.S. dollar liquidity, safe-haven demand, and central bank reserve preferences; commodities such as crude oil and copper are more affected by physical supply-demand and inventory cycles. Commodity prices are not a "discounted enterprise value" but the result of marginal supply-demand and market expectations.

Bitcoin likewise has no traditional cash flow. Its valuation discussions often revolve around fixed supply rules, network security, holder behavior, on-chain settlement demand, institutional participation, macro liquidity, and its relationship with the fiat system. These variables are important but cannot be directly discounted like corporate profits or bond coupons. Therefore, Bitcoin's valuation uncertainty is higher, and market prices are more sensitive to narrative changes, regulatory events, and liquidity shocks.

This is also a frequently misunderstood aspect of the SEC's review of crypto ETFs: regulators are not providing a "reasonable valuation" for Bitcoin but assessing whether the product can trade under securities market rules, whether information is adequate, and whether market manipulation and fraud risks have been appropriately addressed.

Inflation and Interest Rate Sensitivity: Different Assets' "Inflation-Hedging" Mechanisms Are Not the Same

When inflation rises, commodity prices may first attract attention because energy, food, and metals are themselves part of the inflation basket or production costs. However, commodities are not always stable inflation hedges: if economic slowdown leads to demand decline, certain commodities may also fall; if the futures curve structure is unfavorable, holding returns of related products may also fall below spot performance.

Stocks' reaction to inflation is more complex. Companies with pricing power, low leverage, and stable demand may pass costs on to customers; however, high-valuation growth stocks may come under pressure when interest rates rise because the discount rate on future cash flows increases. If inflation is accompanied by margin compression, stocks will also face pressure.

Bonds are typically very sensitive to interest rates. Rising nominal rates depress existing bond prices, with greater impact the longer the duration. Inflation-protected bonds can partially hedge changes in inflation indicators but remain affected by real rates, term, and market liquidity.

Bitcoin is often viewed by some investors as a scarce asset or "digital hard asset" because its supply rules differ from fiat credit expansion. However, in actual markets, Bitcoin is also frequently influenced by U.S. dollar liquidity, real interest rates, risk appetite, and leverage environment. When real interest rates rise and markets reduce risk exposure, Bitcoin may come under pressure in tandem with high-volatility risk assets. Therefore, simplifying Bitcoin as "necessarily inflation-hedging" is insufficient; a more reasonable statement is that it has a scarce-supply narrative, but short- to medium-term prices remain strongly influenced by macro liquidity and risk appetite.

Correlation and Diversification: Diversification That Works in Normal Times May Fail in Crises

One core purpose of multi-asset allocation is to reduce exposure to a single risk source. Stocks represent corporate earnings and economic growth risk, bonds represent interest rate and credit risk, commodities represent physical supply-demand and inflation risk, and Bitcoin represents emerging digital asset network, liquidity cycle, and regulatory expectation risk. In theory, these different risk sources may produce diversification effects.

However, correlation is not a fixed constant. In calm markets, correlations between certain assets may be low; during liquidity stress, investors may sell multiple assets simultaneously to meet margin, redemption, or risk-budget requirements, causing correlations to rise. Bitcoin especially requires attention here: in periods of declining risk appetite, it may not rise like traditional safe-haven assets but may fall together with high-beta stocks or growth stocks.

Therefore, when using correlation, at least three layers of checks should be performed: first, look at long-term correlation; second, look at correlation during bear markets and liquidity shocks; third, examine the impact on portfolio maximum drawdown and rebalancing needs after adding the asset. Even if an asset has high long-term expected returns, if volatility is too high or position size too large, it may force the portfolio to sell at critical moments.

Specific scenario: suppose an investor originally holds 70% stocks and 30% bonds and wants to add Bitcoin. A more prudent approach is not to directly replace 30% bonds with Bitcoin, but first to simulate the impact of a 1% to 5% position on portfolio volatility, maximum drawdown, and rebalancing frequency, while setting a loss tolerance range. If this position would force the investor to sell emergency funds or long-term core assets during extreme drawdowns, it indicates the position is too large, rather than a problem that the asset itself being "good or bad" can solve.

Custody and Access Methods: ETFs Lower the Barrier but Do Not Eliminate Underlying Risks

Stocks, bonds, and commodity ETFs are typically held through securities accounts; investors face brokers, fund companies, custodian banks, exchanges, and clearing systems. The advantage is familiar operations, clear statements, and relatively standardized tax and compliance paths; the disadvantage is that investors do not directly hold the underlying assets and still rely on intermediaries and market infrastructure.

Directly holding Bitcoin is completely different. Investors can store assets in self-custody wallets; controlling private keys means controlling transfer rights, but it also means bearing risks such as private key loss, seed phrase leakage, phishing attacks, erroneous transfers, and hardware damage. Using centralized exchange custody can lower operational barriers but introduces risks of platform credit, asset misappropriation, withdrawal restrictions, and compliance freezes.

Crypto ETFs sit between the two: they allow investors to obtain price exposure through traditional securities accounts without personally managing private keys; however, investors hold fund shares and cannot use the shares as on-chain Bitcoin, nor conduct on-chain transfers, participate in self-custody, or directly verify assets. Funds may also generate management fees, tracking error, premiums/discounts, and trading time mismatches.

From the SEC review perspective, custody is one of the important issues. Once crypto assets have private keys stolen or internal controls fail, recovery difficulty may be higher than for traditional assets. Therefore, when comparing different access methods, investors should pay attention to custodian qualifications, cold storage arrangements, insurance or compensation limits, audit disclosures, asset segregation, creation/redemption processes, and incident handling mechanisms. Information that cannot be confirmed should not be assumed to be safe.

A Practical Multi-Asset Comparison Table

The value of this table is to remind investors that the "risk" of different assets is not the same type of risk. Comparing them using a single return number often masks differences in risk sources.

Conclusion: The SEC Rule Framework Is the Entry Point; Asset Comparison Is the Core of Investment Decisions

Understanding why the SEC can approve or reject crypto ETFs can help investors avoid two extreme misconceptions: one is treating approval as regulatory endorsement, and the other is treating rejection as a denial of the underlying asset's value. A more accurate understanding is that ETF review focuses on whether the product can operate transparently, monitorably, and tradeably within the securities market framework; whether an asset is suitable for an individual's portfolio must return to sources of returns, volatility, liquidity, cash flow, interest rate sensitivity, correlation, and custody methods.

Bitcoin, stocks, bonds, and commodities may all play roles in a portfolio, but their applicable boundaries differ. Stocks are more suitable for taking on long-term corporate growth risk, bonds are more suitable for managing cash flow and interest rate risk, commodities may provide supplements during specific inflation or supply-demand shocks, and Bitcoin leans more toward high-volatility, strong-narrative digital asset exposure significantly influenced by liquidity and regulation. No single indicator, regulatory event, or ETF listing outcome can guarantee future returns. A more robust approach is to first define investment horizon and loss tolerance, then decide whether to allocate, through which vehicle, and at what size.

References

1. Understanding Why the SEC Can Approve or Reject Crypto ETFs：https://trustwallet.com/en/blog/academy/understanding-why-the-sec-can-approve-or-reject-crypto-etfs
2. SEC: Order Granting Accelerated Approval of Proposed Rule Changes to List and Trade Spot Bitcoin-Based Commodity-Based Trust Shares and Trust Units：https://www.sec.gov/files/rules/sro/nysearca/2024/34-99306.pdf
3. SEC Investor.gov: Exchange-Traded Funds (ETFs)：https://www.investor.gov/introduction-investing/investing-basics/investment-products/exchange-traded-funds-etfs
4. SEC Investor.gov: Crypto Assets：https://www.investor.gov/introduction-investing/investing-basics/investment-products/crypto-assets
5. CFTC: Bitcoin Basics：https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoinbasics0218.pdf
6. OneKey Blog：https://onekey.so/blog/

Risk Disclosure

This article is for educational and informational reference only and does not constitute investment advice, legal opinion, tax opinion, or any offer to buy or sell. Bitcoin, stocks, bonds, commodities, and related ETFs/ETPs all involve risks: market risks include sharp price volatility, valuation contraction, and macro liquidity changes; execution risks include trading slippage, widening bid-ask spreads, trading time mismatches, abnormal creation/redemption mechanisms, and orders not executing as expected; liquidity risks include reduced depth in stressed markets, widening premiums/discounts, or restricted redemptions; custody risks include failure of brokers, fund custodians, exchanges, wallet private keys, or third-party services; technology risks include on-chain transfer errors, smart contract vulnerabilities, network congestion, private key leakage, and network attacks; leverage risks include margin calls, forced liquidation, and derivatives cascade liquidation; regulatory risks include changes in product listing rules, enforcement actions, changes in disclosure requirements, changes in tax treatment, or policy differences across jurisdictions. Investors should make independent judgments based on their own financial situation, investment horizon, and risk tolerance.