It is not every day that a Securities and Exchange Commissioner comes out in support of a cryptocurrency initiative. However, as July is saying goodbye, we got to see this happening. SEC Commissioner Hester M. Peirce recently wrote a public statement of dissent on the government agency’s website after they did not approve the Winklevoss Twins’ Bitcoin ETF application even though it satisfied the requirements of Exchange Act Section 6(b). The Winklevoss brothers are currently operating a crypto exchange called Gemini.
Peirce Shares Her Views
In the dissent, Peirce contests SEC’s stand of denying the application of Gemini crypto exchange operators — the Winklevoss twins — to launch a Bitcoin ETF. She wrote:
“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, Inc. (“BZX”).”
She adds that in reviewing the proposed rule change, SEC took into account whether it is consistent with the Securities Exchange Act of 1934. She said:
“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”).”
Pierce further notes that SEC’s decision seems to stifle innovation, making the agency deny the investors an opportunity to gain exposure in the cryptocurrency sector.
The BTC ETF Backstory
The Bitcoin ETF (ETP) story began last year when the Winklevoss brothers intended to launch a crypto derivative in the market and sought the approval of SEC. However, the proposal was rejected.
Pierce suggests that SEC found the ETP proposal to be inconsistent with Section 6(b)(5) of the Securities Exchange Act of 1934. It states that the exchange’s rules must be “designed to prevent fraudulent and manipulative acts and practices [and] to protect investors and the public interest.” She suggests that the agency did not look into the legitimacy of the contract but on the high volatility of prices in the Bitcoin spot market to decide that the ETP was not worth it.
The rule, she notes, says nothing about the kind of assets underlying the products. Therefore, as long as the exchange (BZX) in this case has rules in place that prevent fraud on its platform, it does not violate the securities laws.
Exchanges are considered self-regulatory organizations (SROs), according to the current law. If BZX lists the Bitcoin derivative, it would be under obligation to ensure that the product is trustworthy.
Another Bitcoin ETF application filed jointly by VanEck and SolidX is still pending before the agency. And its fate will be decided next month.