On July 26th, 2018, the Securities and Exchange Commission (SEC) officially rejected a petition to authorise the first ever Bitcoin exchange traded fund (ETF). The petition was lodged by owners of the Gemini crypto-exchange — the Winklevoss twins. This is officially the second time that the SEC has rejected such a proposal from this idiosyncratic pair of entrepreneurs — the first time being in March, 2017.
The main argument on which the Commission based its decision against issuing a regulation is that the proposed ETF would lack the adequate mechanisms for preventing fraudulent and manipulative practices, that could be harmful to the interests of investors and the general public.
Madame Commissioner Disagrees
The decision however, was somewhat unusual, in that it was not unanimous (3-1). Even more interesting is the fact that the voice of dissent was none other than the SEC commissioner — Hester Peirce. Peirce unexpectedly broke rank with her fellow Commission members by not only voting against them, but also by subsequently criticising their decision as “premature.”
Commissioner Peirce elaborated her position by stating that in her view refusal to regulate Bitcoin ETF will ironically undermine investor protection by preventing greater institutionalisation of Bitcoin.
In Peirce’s view, only further institutionalisation and creation of a comprehensive regulatory framework will create proper safeguards for investors. The Commissioner went on to voice additional disapproval of her colleagues’ verdict by declaring that such a decision, “…sends a strong signal that innovation is unwelcome in our markets.”
Forget the Winklevosses, All Eyes on Chicago
Despite the momentary disappointment expressed by some members of the crypto-community, Bitcoin bulls remained optimistic and Bitcoin price has been relatively steady and even recovered some losses from previous sessions. The main reason attributed to this seeming nonchalance is that the Winklevosses are only one of several parties that are presently trying to convince authorities to approve a Bitcoin ETF.
Recently, a San Francisco-based company called Bitwise Asset Management has filed paperwork with the SEC to try and find success where the Winklevosses failed.
In yet another example, an application for Bitcoin ETF approval was filed on behalf of a money management firm called the VanEck SolidX. What makes this case particularly interesting is that the paperwork was filed on behalf of VanEck, by the Chicago Board Options Exchange (Cboe). VanEck’s vision and ideas have apparently found broad support among the staff of the CBOE, including its president and C.O.O. — Chris Concannon.
In the aftermath of the SEC’s rejection of the Winklevoss bid, Mr. Concannon wrote, “We are reviewing both the Commission’s notice and Commissioner Peirce’s dissent with interest” — intimating solidarity with Peirce’s stance. By voicing such a position, Mr. Concannon and Commissioner Peirce are joining the ranks of regulated financial institutions such as Goldman Sachs, JPMorgan and Morgan Stanley, who over the past several months have been embracing Bitcoin and adding it to their line of financial products. If approved, the ETF is expected to be listed on the Cboe BZX Equities Exchange.
One major difference between the Winklevosses proposal and that of VanEck is that the former seems to be proposing more sophisticated mechanisms of consumer protection. One aspect of this is the offering of insurance by VanEck, in order to provide consumers better protection against sudden losses and theft of cryptocurrency by cybercriminals. This is why the anticipation around the potential approval of VanEck’s proposal is more palpable than that of other similar companies. If accepted, this proposal will bring the first cryptocurrency exchange-traded fund to the American market. To date, U.S. regulators haven’t approved any ETF’s linked to Bitcoin or any other digital currency.
How Will This Impact Bitcoin?
The creation of an ETF would not only lend additional legitimacy to Bitcoin but also open up investment of into it, to a wider range of mainstream investors, as anyone with a brokerage account could participate.
The decision regarding VanEck’s application will not be made right away and could take several months to arrive. Despite this, many market players have opined that no matter what the outcome is, the process itself will further increase awareness and interest in Bitcoin.
Many market observers have voiced the opinion that if the SEC did approve of a Bitcoin ETF, this could trigger have triggered a major bull run. According to a study conducted by Tom Alford — a prominent trader and crypto-enthusiast — he concluded that if the ETF were approved, Bitcoin’s price could have increased by 500 percent. While this figure may seem far-fetched to some, there is little doubt that if/when the authorities finally do come around to approving a Bitcoin ETF, its price would only stand to benefit.