The U.S. Securities and Exchange Commission’s Thursday rejection of the Winklevoss Bitcoin ETF drew a sharp rebuttal from Commissioner Hester Peirce, who suggested that her fellow regulators erred in their decision. Peirce responded on Twitter and made her case against the SEC denial in an eloquent dissent published on the SEC website.
In her Thursday tweet, Peirce wrote, “Apparently, bitcoin is not ripe enough, respectable enough, or regulated enough to be worthy of our markets. I dissent.”
Her public statement on the SEC’s site elaborated on that dissent, artfully countering each of the arguments the commission presented in its decision. She began by explaining why she was concerned about the ruling and would like to see it reversed:
“I am concerned that the Commission’s approach undermines investor protection by precluding greater institutionalization of the bitcoin market. More institutional participation would ameliorate many of the Commission’s concerns with the bitcoin market that underlie its disapproval order. More generally, the Commission’s interpretation and application of the statutory standard sends a strong signal that innovation is unwelcome in our markets, a signal that may have effects far beyond the fate of bitcoin ETPs.”
Peirce offered a rebuttal to the SEC’s stated reasons for denying the requested rule change by first noting that the Commission erred in its determination that the rule change does not satisfy Exchange Act requirements that exchange rules be designed to prevent fraud and manipulation. She argued that the BZX exchange’s rules for listing shares of the Winklevoss Bitcoin Trust meet the requirements established by that Act.
She also argued that the Commission overstepped its bounds by focusing its concerns on the “quality and characteristics of the markets underlying a product that an exchange seeks to list. According to Peirce, the order’s concerns seem to be focused on the “merits of Bitcoin … as an investment” by raising issues related to “potential future actions of potential large holders of bitcoin, academic speculation about past manipulation in the market, and the lack of regulation of the spot market.” She suggested that the decision’s standard would imperil many existing commodity-based ETPs if it were applied in other markets.
Commissioner Peirce warned that the rejection order would inhibit institutionalization, which she argues could provide a remedy to many of the SEC’s stated concerns. In addition, she suggested that the decision “demonstrates a skeptical view of innovation” and “signals that the Commission reserves for itself the authority to judge when an innovation is ripe enough, respectable enough, or regulated enough to be worthy of the securities markets.”
Peirce argued that the SEC’s decision amounts to “merit regulation” that denies investors the opportunity to gain indirect exposure to Bitcoin in a regulated securities market:
“Many investors have expressed an interest in gaining exposure to bitcoin, and a subset of these investors would prefer to gain exposure without owning bitcoin directly. 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.
If we were to approve the ETP at issue here, investors could choose whether to buy it or avoid it. 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.”