SEC Commissioner: Dissents on SEC Rejecting Bitcoin ETF

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Bad news for Bitcoin yesterday as the SEC has rejected the proposal, in which, Bitcoin would be packaged into and ETF (exchange-traded fund). The decision comes down after a proposal submitted by Gemini Exchange founders, Cameron and Tyler Winklevoss, was rejected in 2016, requesting Winklevoss Bitcoin Trust listed as an ETF on Bats BZX Exchange, Inc. (BZX). In March 2017, a petition was submitted, BZX asserted that the institutional involvement would help to improve upon surveillance of Bitcoin trading and “…prevent fraudulent and manipulative acts and practices”, and “to protect investors and the public interest.”; these are two of the requirements under the Exchange Act Section 6(b)(5). Specifically, BZX has claimed that:

“(The) geographically diverse and continuous nature of bitcoin trading makes it difficult and prohibitively costly to manipulate the price of bitcoin…(the Bitcoin market is) generally is less susceptible to manipulation than the equity, fixed income, and commodity futures markets…(therefore) generally is less susceptible to manipulation than the equity, fixed income, and commodity futures markets”

Despite the petition, and a majority of positive responses in a public comment board hosted by the SEC, their decision to reject the listing of Bitcoin as an ETF was brought down. The SEC commission stated:

“…even if a proposed rule change would provide certain benefits to investors and the markets, the proposed rule change may still fail to meet other requirements under the Exchange Act. For the reasons discussed above, BZX has not met its burden of demonstrating an adequate basis in the record for the Commission to find that the proposal is consistent with Exchange Act Section 6(b)(5), and, accordingly, the Commission must disapprove the proposal.”

A vote of 3-1 voted to disapprove the proposal; the single dissenter being Commissioner Hester Peirce. Commissioner Peirce tweeted yesterday afternoon about her disapproval of the SEC’s rejection of green-lighting the Bitcoin ETF, teasing her thoughtful response to her dissenting opinion on the matter:

Ms. Peirce believes that the commission’s decision actually undermines protection of investors by preventing Bitcoin from greater institutional involvement. Peirce shares the similar point of view of the Winklevoss brothers and BZX, in that, greater institutionalization would improve upon the concerns expressed by the SEC’s naysayers. Peirce exclaimed:

“More generally, the Commission’s interpretation and application of the statutory standard sends a strong signal that innovation is unwelcome in our markets, a signal that may have effects far beyond the fate of bitcoin ETPs.”

She goes on to state:

“…I would limit review of BZX’s rule filing to a consideration of whether the exchange’s rules governing the trading of the ETP shares are consistent with Exchange Act Section 6(b)(5). Based on the record before the Commission, I find that they are consistent and would approve the rule filing.”

Commissioner Peirce concludes her clarification of dissension by stating:

“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.”

While this type of decision does not spell good news for getting Bitcoin listed as an ETF or ETP, there are other pending requests for similar approval. Bitwise Asset Management (a cryptocurrency index fund), Van Eck Associates Corp. (global investment money management firm) and SolidX Management LLC (a small financial services and software development company) all have proposals awaiting approval. Hopefully, the wise and objective view points from Ms. Peirce find their way through the FUD, and don’t fall on deaf ears, unwilling to give a fair shake to nascent industries, and the regulations they require to succeed, on behalf the free-willed investors supporting them and the uninformed general public.

Full SEC report: https://www.sec.gov/rules/other/2018/34-83723.pdf?mod=article_inline

Commissioner Hester M. Peirce’s full public statement about the decision: https://www.sec.gov/news/public-statement/peirce-dissent-34-83723

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