SEC Commissioner Optimistic on Effects of Crypto ETF
Last week the SEC rejected the Winklevoss twins’ proposal to open the world’s first bitcoin ETF, citing safety concerns for U.S. investors. In other words, the SEC was trying to protect U.S. investors from losing money due to forces such as price manipulation and fraud. Hester Pierce, one of five SEC commissioners, disagrees with the reasoning and thinks an ETF can actually counter the forces of price manipulation and benefit U.S. investors.
Approval of ETF will actually reduce effects of price manipulation
Many bitcoin critics point to price manipulation and cases of fraud as reasons against the digital coin, and the SEC followed this logic when rejecting the Winklevoss twins’ bitcoin ETF.
However, price manipulation is only possible in this market due to lack of capital and large investors. Under current market conditions, when a large buy or sell order goes through, the entire market shifts. Sure, a cartel of investors might be manipulating the price, but this can also be the case in other markets like oil, wheat, or gold. The difference is the bitcoin market is much smaller and therefore more sensitive to price manipulation. In a public statement uploaded to the SEC’s website, Hester Peirce claims that approval of the bitcoin ETF will actually benefit investors rather than hurt them because it will “institutionalize” the markets, offer greater “investor protection”, and reduce the effects of price manipulation.
I am concerned the the Commission’s approach undermines investor protection by precluding greater institutionalization of the bitcoin market. More institutional participation would ameliorate many of the Commissions 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
Of course, price manipulation will still exist with bitcoin ETFs, just as it will always exist with oil, gold, and any other commodity markets. Hester Peirce highlighted that if the same rules had been applied to other markets with similar characteristics such as oil, gold, etc., there would not have been any ETFs based on these commodities.
They cite a number of reasons for that decision, and specifically in this case, what I think they did is look through the underlying asset—in this case that would be Bitcoin—and they raised some concerns about the market for that underlying product.
I think by doing that they went beyond what the statute allows us to do, and we should have really focused on the market where the exchange-traded product would trade as opposed to focusing on the underlying Bitcoin markets.
I think if you did even decide you want to focus on the Bitcoin markets I still would have come to a different conclusion than they did.
Can Hester Peirce shift the SEC’s stance?
In an interview with CNBC, Heather Pierce claimed that, “I think we have an important role to play telling the United States and the world that our capital markets are open to innovation. And that’s what sort of drove my dissent last week and what really drove me to come back to the agency as a commissioner.”
She went on to reveal that despite not owning any bitcoin, she is a big fan of innovation and thinks “that there’s a lot of interesting momentum in this space to solve problems that have been around for a long time […] that can be solved by Bitcoin, cryptocurrencies and blockchain.“
It’s hard to tell which way the SEC is siding with currently, although Heather Pierce warned that “if we have a system that unwelcoming to innovation, it will go elsewhere or will not happen. And that will hurt real people so I do worry about that.“
The decision for the latest bitcoin ETF proposal is scheduled for the first days of August, although an extension seems likely.
So while the SEC has a track record for swatting down ETF proposals, recent trends show that the crypto space is still optimistic in their evaluations.
“B2B reporter – Content Manager – Contributor – Fintech – Blockchain – Cryptocurrency”
Simon Chou is a B2B reporter and content manager specializing in technology and finance. He has worked with many clients in the fintech and blockchain space. He holds investment positions in bitcoin and other large-cap cryptocurrencies, and has been reporting on cryptocurrency since 2017. Currently, Simon is the content manager for a major cryptocurrency exchange @HybridBlockHQ.