The U.S. Securities and Exchange Commission (SEC) could expand its definition of exchange directly impacting Bitcoin, cryptocurrencies, and decentralized finances (DeFi).

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Per a report from Bloomberg’s ETF experts James Seyffart and Eric Balchunas, BTC spot ETF proponents will be the biggest winner from this potential chance.

In 2021, the Commission approved a Bitcoin-linked futures ETF in the U.S., for the first time in history. This was celebrated across the crypto industry, but Balchunas, Seyffart, and other experts pointed out the inefficiencies of this investment product.

A BTC-linked spot ETF, they argued, would be more beneficial for consumers. However, the Commission claimed the BTC futures ETF offers more “protection”.

This failed to deter investment firms from filing for a BTC spot ETF. The SEC has denied these petitions as it considers that the investment product would lack the regulatory framework to prevent harm to consumers.

The exchange expansion could change this status quo. Via his Twitter account, Seyffart said:

This is the same rule change proposal that would likely open the door to a spot bitcoin ETF if enacted as written.

As the experts wrote, this change doesn’t address cryptocurrencies or the crypto industry, but it could force crypto exchanges and DeFi platforms to register with the SEC. Thus, Seyffart and Balchunas believe that the Commission will lose all the arguments to continue denying a Bitcoin spot ETF.

As the expert wrote, the change in the definition of exchange could be implemented at some point during Q4, 2022, or Q2, 2023. Although good for institutional investors looking to get exposure to Bitcoin, the new definition could be a first step at classifying all DeFi assets as securities:

The definition of what constitutes an exchange and an ATS (alternative trading system) gets broadened. I think numerous cryptos are also going to be deemed securities. So for some of these crypto exchanges to keep operating they will have to do so as an ATS.

What’s Good For Bitcoin Could Be Bad For DeFi

In a separate report, the DeFi Education Fund has called on the community to address this potential issue. Via their official Twitter handle, this organization instructed DeFi users to demand “clarification” from the U.S. regulator.

Despite not including cryptocurrencies or DeFi, the organization believes there are “danger signs”. The DeFi Education Fund said:

In a nutshell, the proposed rule would potentially require any organization/association/group of people that “makes available” a “communication protocol system” (CPS) to comply with financial regulations designed for exchanges like NYSE if a CPS allows people to interact & agree to terms of a trade.

The definition of what constitutes a communication protocol system (CPS) is unclear. Thus, the DeFi Education Fund decided to take action and demand more clarity.

DeFi users can email a comment to the U.S. regulator until April 18^th, 2022, by accessing this link. The organization aims at preventing the SEC from creating “more uncertainty for DeFi”. The DeFi Education Fund concluded:

The more that people comment requesting clarification, the likelier it is the SEC will consider changes.

SEC Commissioner Hester Peirce has commented on this potential definition change. Peirce believes this amendment “goes far beyond the scope of the concept release” and could impact multiple sectors.

The protocols running on top of Ethereum and other blockchains, such as Uniswap, SushiSwap, and Aave, are decentralized. Smart contracts can ignore the SEC, but this amendment could create new obstacles for developers and users.

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At the time of writing, Bitcoin trades at $46,468 with a 1.5% profit in the last 24-hours.