SEC Commissioner Expresses Dissent About Bitcoin ETF Rejection Publicly
Commissioner Publicly Disagrees With Major Bitcoin ETF Rejected By the SEC
SEC Release No. 34-83723, File No. SR-BatsBZX-201X-2016-30 formally denied the Winklevoss Bitcoin Trust ability to list and trade shares.
For the second time, the US Securities and Exchange Commission (SEC) rejected the same major fund that was seeking approval from the bitcoin ETF. But at least one SEC official disagrees with her colleagues decision.
The decision comes amid high levels of optimism towards the approval of bitcoin ETFs as early as next month. This Thursday 26 July could be seen as a major setback for the outlook for ETFs.
Apparently, bitcoin is not ripe enough, respectable enough, or regulated enough to be worthy of our markets. I dissent: https://t.co/gH5zXaKtmj
— Hester Peirce (@HesterPeirce) July 26, 2018
Bitcoin's ETF Rejected By The SEC
The SEC issued its decision to deny a major bitcoin consortium the ability to list and trade shares as an ETF. In a 92-page explanation, the main regulator of these markets in the US rejected a rule change at the behest of Bats BZX Exchange. The proposed change would have allowed bitcoin-linked investment products.
Bats BZX is in almost the same position as last year, when it was first rejected. On appeal, Bats petition brought strong public comment in hopes of changing the agency's view.
Perhaps what was thought to be a positive indication for enthusiasts was how the SEC stipulated not to necessarily be prejudiced against cryptocurrencies. But now his latest decision blames the proposal more than its particular elements.
While rejecting the request and the change of rules, the Commission emphasizes that its disapproval is not based on an assessment of whether the bitcoin technology, or the blockchain technology in general, has utility or value as innovation or investment.
As such, what they are rejecting is the change of rules because, as discussed with the details of the decision, BZX has not complied with its burden under the Securities Exchange Act and the Commission's Rules of Practice to demonstrate that its proposal is consistent with the requirements of Section 6(b)(5) of the Securities Exchange Act. And in particular taking into account also the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices, noting that regulated markets related to gold coins can continue to grow and develop.
The Final Goal?
ETFs are considered by crypto enthusiasts to be the bridge that will lead the currency to widespread adoption. Since all fans see it as the “holy grail” of financial investment products.
Exchange-traded funds can be listed on legacy dashboards such as the New York Stock Exchange in the same way as conventional stocks. The variety that bitcoin provides would probably be a basket of different crypto investments, diversified and relatively low-cost as mutual funds.
That diversity is believed to be less risky, let alone save investors – less crypto experts – the hassle of choosing which to buy. And, especially with regard to decentralized digital assets, the complication of having keys, a wallet, and finding out custody or storage is all taken care of. By the way, retail investors are very familiar with ETFs.
The SEC expanded its reasoning, explaining how existing or newly created bitcoin futures markets can reach significant size. For example, a stock exchange listed on the European Technology Platform may demonstrate in a proposed change to the rules that it will be able to address the risk of fraud and manipulation by sharing surveillance information with a regulated market of significant size related to bitcoin. As well as, where applicable, the spot markets underlying the relevant bitcoin derivatives.
The Commissioner Who Disaggregated The Decision
However, not everyone at the SEC was on board with the recent decision to deny bitcoin exchange traded funds. “By precluding approval of cryptocurrency-based ETPs for the foreseeable future, the Commission is engaging in merit regulation,” Commissioner Hester M. Peirce wrote in a published dissent from her colleagues.
Echoing sentiment among enthusiasts and crypto investors alike, the Commissioner wrote how such a product:
“based on bitcoin would offer investors indirect exposure to bitcoin through a product that trades on a regulated securities market and in a manner that eliminates some of the frictions and worries of buying and holding bitcoin directly. If we were to approve the ETP at issue here, investors could choose whether to buy it or avoid it. The Commission’s action today deprives investors of this choice. I reject the role of gatekeeper of innovation—a role very different from (and, indeed, inconsistent with) our mission of protecting investors, fostering capital formation, and facilitating fair, orderly, and efficient markets. Accordingly, I dissent.”
What are your thoughts on the Bitcoin ETF rejection, the SEC Commissioners comments as well as the upcoming VanEck ETF? We would love to hear your comments below.