On Thursday evening (26 July 2018), following the publication of the 3-1 decision of the U.S. Securities and Exchange Commission (SEC) to disapprove the Winklevoss Bitcoin ETF for the second time, SEC Commissioner Hester Peirce sent out one amazing tweet that won the hearts of our crypto community, and made her a hero to everyone who loves Bitcoin and is still holding out hope for a Bitcoin ETF in the near future.
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
In her public statement titled “Dissent of Commissioner Hester M. Peirce to Release No. 34-83723; File No. SR-BatsBZX-2016-30”, she started by saying that the proposed rule change (every application for a new ETF is called a “proposed rule change” and must be granted exemption by the SEC since U.S. securities laws do not explicitly deal with ETFs) was consistent with the Securities Exchange Act of 1934, and that is the reason why she felt that it should have been approved:
“I respectfully dissent from the Commission’s order disapproving a proposed rule change, as amended, to list and trade shares of the Winklevoss Bitcoin Trust on Bats BZX Exchange… As the order notes, in reviewing such a proposed rule change, the Commission considers whether the proposed change is consistent with the Securities Exchange Act of 1934… and the rules and regulations thereunder… Contrary to the Commission’s determination, I believe that the proposed rule change satisfies the statutory standard and that we should permit BZX to list and trade this bitcoin-based exchange-traded product (‘ETP’). Accordingly, I would set aside the action the staff took by delegated authority in this matter and approve the proposed rule change.”
Next, she listed her other two main concerns about this decision by the SEC:
“In addition, I am concerned that the Commission’s approach undermines investor protection by precluding greater institutionalization of the bitcoin market. More institutional participation would ameliorate many of the Commission’s concerns with the bitcoin market that underlie its disapproval order. 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.”
In conclusion she expressed her feelings with the decision of depriving investors to invest in a cryptocurrency-based ETP.
By precluding approval of cryptocurrency-based ETPs for the foreseeable future, the Commission is engaging in merit regulation. Bitcoin is a new phenomenon, and its long-term viability is uncertain. It may succeed; it may fail. The Commission, however, is not well positioned to assess the likelihood of either outcome, for bitcoin or any other asset. Many investors have expressed an interest in gaining exposure to bitcoin, and a subset of these investors would prefer to gain exposure without owning bitcoin directly. An ETP 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.