SEC Commissioner Hester Peirce Objects the Bitcoin ETF Rejection

Marcus Newton
July 29, 2018

She argues, essentially, that this is a case of catch 22: the Bitcoin market has its problems but these problems would be "mitigated by institutionalizing the market".

"More institutional participation would ameliorate numerous Commission's concerns with the bitcoin market that underlie its disapproval order", she wrote in a statement, adding that the decision "sends a strong signal that innovation is unwelcome in our markets".

This is not the first time that the SEC rejects a Bitcoin ETF.

But a high ranking officer at the commission, Commissioner Hester M. Pierce tolled a different path; she said "by precluding approval of cryptocurrencies based ETF'S for the foreseeable future, the commission is engaging in merit regulation".

Although BZX argues that its proposal can satisfy these requirements because Bitcoin markets are inherently hard to manipulate, and because alternative means of identifying fraud and manipulation would be sufficient, the Commission concludes that, as discussed above, BZX has not established that these proffered means of compliance-alone or in combination-are sufficient to meet the requirements of Exchange Act Section 6 (b)(5). But the consistency with the Exchange act is not the only issue highlighted in Peirce's dissent. They have since become two of the most prominent Bitcoin entrepreneurs. Through their Gemini company, they have sought to expand the market for bitcoin, operating an exchange and partnering with Cboe Global Markets to hold an auction used to determine the official price for bitcoin futures. She argued that the movement of Bitcoin ETPs into the market would foster a sense of institutionalization that would target the problems that the Commission faces with the Bitcoin market.

Following the order, the bitcoin price dived about 4 percent to trade below United States dollars 8,000.

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She also spoke about participation by institutional investors into the market, which would then drive stronger custody solutions due to the number of funds.

"Because the disapproval order focuses on the bitcoin spot market, it does not give adequate weight to the important function that exchanges, as self-regulatory organizations ("SROs"), perform under our regulatory framework". This would, in turn, increase the security in the markets and hence make it more hard to manipulate markets.

Says that: "'(No) current trading venue in the worldwide bitcoin spot market is a regulated market'".

Furthermore, she stated that the disapproval order undermines investor protection, albeit unintentionally. For all the supporters of Bitcoin ETF, the idea expressed in the conclusion of the dissent is worth taking note of: "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".

In a 92-page opinion on Thursday, the commission said it rejected an argument from the twins that "intrinsic properties of bitcoin and bitcoin markets make manipulation 'difficult and prohibitively costly'".

Other reports by MaliBehiribAe

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