Analysis, Crypto

Fake bitcoin ETF approval may trigger lawsuits

By Ellesheva Kissin
bitcoin ETF approval
Image: Bloomberg

A fake social media post from the U.S. Securities and Exchange Commission that made crypto prices falter could lead to legal action, warn a former financial regulator and the chief risk officer of a crypto market maker.

The US securities regulator posted a statement on its X account on Tuesday announcing the approval of spot bitcoin exchange-traded funds. But chair Gary Gensler swiftly clarified on his personal X page: “The SEC’s account had been compromised.”

The price of bitcoin subsequently jumped to $48,000 and then fell by 3.15% over the course of 30 minutes, leaving investors reeling. The next day, the SEC ultimately approved 11 spot bitcoin ETFs.

I can imagine that lawsuits would follow’

Now industry experts anticipate legal action. A former UK regulator believes that if security concerns were at the heart of the hack, the SEC could be sued. 

Investors may have held positions in bitcoin that reduced in value after the tweet, the former regulator says, which would have been force-exited because they lacked liquidity. 

Almost $90m worth of bitcoin long and short positions were liquidated. Even when the value stabilised after the bitcoin ETF approval went ahead, those positions were already closed.

The source says: “Was there a failure within a public body? If it was an SEC failure rather than X, then yes. Did it cause losses – yes, the price went massively up as a result of the tweet. Did that market change result in positions being exited? I mean you can kind of prove it – you’ve got the evidence of your trade and what happened to it. Was there a loss? Yeah there was a loss.”

The CRO of a crypto market maker agrees. “If one can prove that the SEC did indeed post it on X, and subsequently retracted it, (or one could prove it was lax security) then … I can imagine that lawsuits would follow.” Both say that collective legal action looks like a real possibility.

Questions remain over who posted the tweet, and why. But what we do know is that X significantly slashed its security budget in 2022, according to a lawsuit from a previous executive at the social media firm. 

Security failures amid bitcoin ETF approval confusion

X said the regulator had not turned on two-factor authentication, a basic safety feature. “Based on our investigation, the compromise was not due to any breach of X’s systems, but rather due to an unidentified individual obtaining control over a phone number associated with the @SECGov account through a third party,” the social media firm said.

“We encourage all users to enable this extra layer of security,” it added.

Cyber security firm ZeroFox’s vice-president of intelligence, AJ Nash, had this to say: “The best way to prevent these types of account takeover attacks is to ensure that all social media accounts are protected by both strong passwords and two-factor or multi-factor authentication tools.”

Indeed, the SEC’s Gensler has often espoused the same advice himself:


“It would be wise for high-profile/high-impact accounts to consider publishing a list of topics they would never announce via social media. This would better prepare followers to question the validity of any future shocking information that may come through that medium,” Nash adds.

Bitcoin ETF approval: senators demand an investigation

In a co-signed letter, Republican senators James Vance and Thom Tillis demanded the SEC stand accountable for the “widespread confusion” and damage to investors it had caused. Senators Bill Hagerty and Cynthia Lummis chimed in with separate posts on X.

In their letter, Vance and Tillis set a deadline of January 23 for the SEC to explain its plans to investigate the bitcoin approval ETF confusion. US authorities, including the FBI and the SEC itself, are investigating the incident. The Commodity Futures Trading Commission also has the power to investigate.

The saga sparked concern about market manipulation in the crypto sector, undermining the SEC’s market stability directive. It shows “how easily such platforms can be compromised and used to manipulate markets,” says Nicky Gomez of XReg Consulting, a consultancy specialising in crypto assets.

The fact that the crypto industry is hanging on every word from Gary and the SEC on social media is a testament to how thirsty they are for regulatory clarity,” she adds.

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