On Wednesday, August 22, the U.S. Securities and Exchange Commission (SEC) rejected nine Bitcoin ETFs that were linked to the Bitcoin futures contracts and proposed by ProShares, Direxion, and GraniteShares. The SEC cited some pretty common reasons that the proposals did not meet the agency’s requirements to tackle fraud and manipulation, and that the low volumes of Bitcoin futures increase the risk exposure of ETFs.
On Thursday, August 24, the agency took a U-turn on its decision with SEC secretary Brent Fields writing a letter to NYSE Group senior counsel David De Gregorio, saying:
“This letter is to notify you that, pursuant to Rule 43 I of the Commission’s Rules of Practice, 17 CFR 20 I .43 1, the Commission will review the delegated action. In accordance with Rule 431 (e), the August 22 order is stayed until the Commission orders otherwise. The Office of the Secretary will notify you of any pertinent action taken by the Commission.”
SEC Commissioner Hester Peirce on her Twitter handle explained that the agency might reconsider its decision as the ruling was originally drafted by SEC staff members on behalf of the leadership.
In English: the Commission (Chairman and Commissioners) delegates some tasks to its staff. When the staff acts in such cases, it acts on behalf of the Commission. The Commission may review the staff's action, as will now happen here.
— Hester Peirce (@HesterPeirce) August 23, 2018
Hester’s Dissent With the Agency
SEC Commissioner Hester Peirce has been very much open about her dissent with the agency’s recent stand on the rejection of Bitcoin ETF. After the rejection of the Winklevoss Bitcoin ETF last week, Commissioner Peirce wrote a formal dissent on the decision that was published on the SEC’s official website.
Peirce openly stated in her letter that the agency has crossed the limited scope of its role in regulating the securities market and that she considers that the agency has made a mistake by rejecting the Winklevoss Bitcoin ETF. Peirce wrote:
“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.”
She also criticized SEC for engaging in the future “merit regulation” of Bitcoin. Peirce stated that the jury has yet to decide whether Bitcoin will turn out to be a viable product or not in the future, however, it is not the agency’s job to dig into the future scope of Bitcoin, and whether it would succeed or fail. Peirce noted:
“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,” she said. “The Commission, however, is not well positioned to assess the likelihood of either outcome, for bitcoin or any other asset.”
Peirce also made several other definite arguments to support her claims.