There has been a large amount of enthusiasm in recent months across the crypto space that the United States Securities and Exchange Commission (SEC) would approve a Bitcoin exchange traded fund (ETF), which would effectively put Bitcoin on the stock market, and make it easy for institutional investors to buy Bitcoin on all the major stock trading platforms.
However, these hopes were shot down when the SEC rejected the Winklevoss Bitcoin Trust ETF in a 92-page document detailing how the underlying Bitcoin market was not mature or safe enough to approve any Bitcoin ETF. This is combined with the revelation that the VanEck SolidX Bitcoin ETF, which is similar to the Winklevoss Bitcoin Trust, can have its decision delayed until 2019. One of the SEC commissioners who voted on the ETF, Hester Peirce, has issued a dissenting opinion that the SEC made the wrong choice, overstepped its bounds, and didn’t do its job.
SEC commissioner Peirce says, “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.”
Additionally, Peirce argues that approving a Bitcoin ETF would have created a channel for transparent and regulated investment into Bitcoin, which would protect investors. Not approving the ETF would ultimately keep investments outside of properly regulated channels and harm Bitcoin investors. This is quite the opposite of SEC’s mission to protect investors.
The SEC rejected the Winklevoss Bitcoin Trust based on the dynamics of the underlying Bitcoin market, not on the merits of the ETF itself. Peirce says that the ETF would have been able to follow all of the SEC rules and regulations to ensure lack of market manipulation and that it wasn’t appropriate for the SEC to reject the ETF based on the underlying market.
Winklevoss Bitcoin Trust had a surveillance agreement in place with the Gemini exchange, which Peirce thinks is sufficient because the ETF’s price would have been based on Gemini’s Bitcoin spot price. The SEC demanded surveillance agreements with larger Bitcoin exchanges outside of the United States, which is impractical and not necessary. According to Peirce, the SEC analyzed the Bitcoin market with methods used to analyze other commodity markets that are fundamentally much different, which is inappropriate.
The SEC left the door open for the approval of a Bitcoin ETF in the future if the Bitcoin market matures. Peirce thinks the SEC is slowing down the maturation of Bitcoin by keeping institutional investors out of the market.
The SEC commissioner sees that Bitcoin has numerous unique characteristics that make it worthy of being an investment mechanism, including its electronic nature which facilitates transparency and competition. Bitcoins are interchangeable so investors always get the same thing when they purchase it, and Bitcoin mining is worldwide, insulating it against geopolitical threats, unlike other commodity markets which can be damaged and manipulated by a single country.
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