The demands for a bitcoin exchange traded-fund (ETF) have hit the roof this year with proposals being bombarded in front of the United States Securities and Exchange Commission (SEC) again and again. Despite the ever-increasing demand SEC is holding back on approving any crypto-linked ETF owing to all the illegal activities taking place on the platform. In the recent rejection put forward by the SEC to Winklevoss twins’ proposal, one person stood out, Hester M. Peirce. The commissioner at the SEC dissented over the decision made by SEC stating that SEC should not stand in the way of technological innovations.
Talking to bitcoin magazine, Hester stated that SEC has not been too welcoming of the technological innovations in the past. SEC should not be the deciding which innovation goes through and which does not. She also pointed out that the concerns mentioned by the SEC can be solved by the institutionalization of the market. She stated that, “I do think that institutionalization in this space would address some of the concerns they lay out in their order.”
Regarding SEC’s stance about welcoming new innovations, she stated that:
I think that, historically, the SEC has not been great on innovation, on welcoming innovation, and for me, this order perpetuated my concerns in this regard. We need to have a willingness to welcome new approaches and I’m worried that if we keep sending the message that we’re not open to hearing from people who have new ways of doing things, then people will say we’re going to take our business to another country.
The interest seen in the bitcoin market is increasing day in and day out. If not given a proper platform, many people can be deprived of many new opportunities. A lot of institutions are holding back on their intent of investing in the market of bitcoin due to the lack of no proper platform. The establishment of a bitcoin ETF is necessary to give these institutions the security they demand and need. She stated that:
There are lots of people spending lots of time thinking about this new asset class and they should be able to make decisions about it. I can‘t stand in their shoes and say, “I can see the future better than you can see the future, I can assess where this is going better than you can assess where this is going.”
Hester is of the view that investors should be provided with the opportunities that they deserve. If the investors feel that the market is not suitable for them, then they can stop themselves. SEC should not be the one stopping someone from investing in something.
So yes, I’m very worried about the SEC putting itself in the shoes of investors, which is what it was doing here. Because frankly if this product comes to market, investors might decide, “We’re just not interested in it.”
Concerning the demand for the ETF, Hester stated that the demand for its establishment is very strong and institutions are waiting for such an ETF to get established soon so that they can enter this market and start exploring new opportunities. Concerning the establishment of such an ETF she stated that, “Well, the reason that I anticipate that it’s probable is because there’s a lot of investor demand. And I think at some point that that will help push the agency. When that point will come, I can’t speculate on.”
The major reason behind SEC rejecting the establishment of a crypto-linked ETF is the presence of illegal, fraudulent and manipulative activities. The framework that the blockchain network provides keeps the users anonymous. Although this makes the user information safe from the hackers but this opens up a new issue of negative factors contributing in the market. Illegal activities can easily be performed using the anonymous nature of the cryptocurrency market. There have also been scams involved in the crypto space that keep the investors from entering the crypto market. In the rejection, the SEC mentioned the presence of fraudulent practices as one of the reason for not approving the ETF stating that:
Although the Commission is disapproving this proposed rule change, the Commission emphasizes that its disapproval does not rest on an evaluation of whether bitcoin or blockchain technology more generally has utility or value as an innovation or an investment. Rather, the Commission is disapproving this proposed rule change because as discussed in detail below, BZX has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices.
Hester is of the view that as long as investors are well-aware of the product they are investing into there is no point in stopping them. Instead of providing them with protection, the SEC might be depriving them of their opportunities. In her dissent, she stated 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. The Commission steps beyond this limited role when it focuses instead on the quality and characteristics of the markets underlying a product that an exchange seeks to list.
The SEC should not focus on the future aspect of the bitcoin, rather it should focus on the present issue at hand. It is the incumbent duty of the SEC to provide opportunities and it should act that way.
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.
In a nutshell, the disapproval made by the SEC for bitcoin ETF is not welcomed by the commissioner. Hester believes that SEC should not be acting as a halt in the way of technological innovations and keeping the demands of a bitcoin ETF in view, an ETF should be approved.