SEC Commissioner Believes Winklevoss Bitcoin Trust ETF Qualifies for Approval

SEC Commissioner Hester M. Peirce believes that the Winklevoss Bitcoin Trust ETF qualifies for approval and that it was wrongfully rejected.


SEC commissioner Hester M. Peirce has disagreed with the Securities and Exchange Commission’s (SEC) decision that disapproved the Winklevoss Bitcoin Trust ETF listing application in an open letter.

Key takeaways

  • SEC comissioner published an open letter of dissent on the rejection of the Winklevoss Bitcoin Trust listing on the Bats BZX Exchange
  • The SEC’s rejection was allegedly based on Bitcoin spot market concerns instead of the exchange’s ability to manage the ETF’s share price manipulation
  • Peirce expresses that she is pursaded that the revised application and proposed rule change meet all the listing requirements
  • Pierce’s statement should not be overlooked as it revealed that the crypto industry has a new and important friend at the SEC

On Thursday, the US agency voted 3 to 1 and so rejected the proposal that sought to see the first bitcoin exchange-traded fund offered by a regulated U.S. exchange. In so doing, the SEC had dampened the positive atmosphere that had been building in anticipation of an approval.

However, commissioner Peirce’s letter shows that the decision is not without controversy. For crypto investors and enthusiasts, it could be a voice that says there’s something the regulatory watchdog is overlooking.

SEC abusing its authority

The commissioner expressed that the SEC is making a big mistake by rejecting the ETF. She further explains that the agency overstepped its boundaries and overlooked the issue at hand.

The Commission’s disapproval had determined that the proposed rule change by the Bats BZX Exchange was inconsistent with the Securities Exchange Act of 1934, specifically Section 6(b)(5).

The section requires that a securities exchange that operates nationally have rules “designed to prevent fraudulent and manipulative acts and practices [and] to protect investors and the public interest.”

As such the Commission’s decision relied too much on their view of the underlying Bitcoin spot market, instead of the nature of the ETF shares that the exchange wanted to list for trading.

Therefore, not only did the Commission err in its decision, but by rejecting BZX’s argument, it had also overstepped its mandate. As per Pierce:

“The Commission erroneously reads the requirements of Section 6(b)(5). The disapproval order focuses on the characteristics of the spot market for bitcoin, rather than on the ability of BZX—pursuant to its own rules—to surveil trading of and to deter manipulation in the ETP shares listed and traded on BZX.”

Ms. Peirce further explains that the agency does not mention anything to do with the underlying markets, which has been the regulatory body’s course of action in most other similar orders.

In her formal dissent after the SEC disapproved the application, she notes that the proposed rule change was in line with the Securities Exchange Act of 1934.

According to her, the BZX proposal satisfied all the rules and regulations as required under the Act. Her opening remark categorically states that given the rule change proposal met the statutory standard; the Commission should have permitted BZX “to list and trade this bitcoin-based exchange-traded product (“ETP”).”

Commissioner Peirce also believes that the SEC should have limited its review of BZX’s application to focus on whether the exchange’s ETF trading rules were consistent with Exchange Act Section 6(b)(5).

Her conclusion based on what had been availed to the Commission was that BZX was consistent. It, therefore, means that the Agency should have approved the rule filing.

The SEC is forgetting its mission

In her comments, the Commissioner reminds the regulatory watchdog of its mission. She explains that:

“The Commission’s mission historically has been, and should continue to be, to ensure that investors have the information they need to make intelligent investment decisions and that the rules of the exchange are designed to provide transparency and prevent manipulation as market participants interact with each other.”

In her opinion, the SEC overstepped its role by deciding to focus on the “quality and characteristics of the markets underlying a product that an exchange seeks to list.”

She also contends that the agency may be trying to engage in what she called “merit regulation.” Her feeling is that the crypto market is still very young and that a lot could work or fail. Needless to say, it isn’t in the SEC’s interest to try foreseeing the future of whether Bitcoin would succeed or eventually fail.

Rejecting Bitcoin ETFs inhibits institutions and dampens innovation

It’s Peirce’s assertion that denying exchanges the opportunity to list and allow trading of ETFs was likely to prevent institutionalization of the market.

According to her, the disapproval serves to discourage any would-be new institutional investors from venturing into the Bitcoin and crypto market. It is a course of action that will work against any efforts to see the market mature.

If investors shun the market due to fears associated with continued SEC repression, then the desired growth and maturation will create a vicious circle. This implies that the commission may continue to have issues with the market, unintentionally undermining the very protection it seeks for investors.

To Pierce, the rejection is tantamount to precluding investors from “accessing bitcoin through an exchange-listed avenue that offers predictability, transparency, and ease of entry and exit.”In other words, it keeps away institutional investors

She also feels that this move is a way of capping innovation. The crypto industry is a new phenomenon that needs to be allowed to grow. Such an order as rejecting the bitcoin ETF was a way of telling entrepreneurs that their ingenuity wasn’t welcome, signaling that the securities commission was aversive to innovation.

In her concluding remarks, Ms. Peirce believes that approving the Bitcoin ETF would be more beneficial to the investor than rejecting it. It gives the investor choice, with hindsight that the products are regulated. It is what the SEC sets out to do.

“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.”

She adds that:

“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,”

The market hasn’t taken to the latest gesture from the government body. However, the hope is that the dissenting regulator will have provided the agency a reason to consider approving the ETF proposals before it.

At the moment, what remains is to wait and see the SEC’s next course of action. Bitcoin prices had dropped in the wake of the news. However, it has since recouped some of the losses and is looking to make see more gains over the weekend.

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