Last week, the US Securities and Exchange Commission (SEC) denied a rule change proposal by the Winklevoss twins that would have allowed the Winklevoss Bitcoin Trust to be publicly listed and traded on the BATS Global Markets BZX Exchange (BZX). A previous bid was also denied in March of 2017.
The SEC published a 92-page disapproval order that noted the decision was not based on "an evaluation of whether bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment," but that BZX failed to "demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices."
Not all the commissioners agreed with the ruling.
SEC Commissioner Hester Peirce released a public statement in which she asserted that the SEC focused "its decision not on the ETP [exchange-traded product] shares to be listed on the exchange but on the underlying bitcoin spot market."
In an exclusive interview with ETHNews, Commissioner Peirce talks about her dissenting opinion.
ETHNews: Why do you believe the focus of the SEC was on the bitcoin spot market instead of the abilities of BZX?
Hester Peirce: I think that one of the reasons is that in the past, with other applications for commodities – you might think of metals – [the SEC] also looked at the underlying markets. I would argue that this also was not the right approach at looking at those. Of course, that was well before my time here. But, in addition, I think that there is concern around new technologies, and I think some of that is reflected in the disapproval order.
ETHNews: Based on your statement of dissent, it seems like you feel the Winklevoss proposal was treated unfairly and scrutinized differently than other proposals. Do you feel that this is specifically due to the volatility and uncertainty associated with bitcoin and other cryptocurrencies, or do you see another reason?
HP: I think that I take a different reading of the statutory mandate than my colleagues do, so that would affect the way I would look at any of these things, and I think it would affect the way they would look at any of these things as well. One piece of their order was looking at the potential for manipulation in the bitcoin market, and I think that did play quite a big role – at least as I read it – in their order.
ETHNews: What are your views on Ripple and XRP?
HP: I would rather not weigh in on any particular technology. The point I was trying to make in my dissent was: Look, I'm not the one who should be deciding which technology succeeds and which one fails. I want to make sure that investors get to make that decision, and that they have the information to the extent that they want to access it through our securities markets. I want to make sure they have the information they need to make that decision, and I can assure you that the wisdom of investors is far more trustworthy in assessing these technologies than my wisdom is. And to the extent that we, as an agency, can get away from trying to make value judgments about any particular asset or technology, I think we are better off.
ETHNews: In your opinion, why do you feel the SEC has the perception that they are the gatekeepers of new technology?
HP: I think that historically, the SEC has not been particularly good at welcoming innovation. This is a problem at a lot of government agencies because it's much safer to just say, "Slow down, we want to put the brakes on here," because it is really hard to measure missed opportunities, but it is much easier to measure when there is a problem. If we were to approve something like this and there were a problem, people would come back and say, "Hey, you shouldn't have approved that," so it really is always safer just to say no. We need to figure out a way to give government agencies – including the SEC – permission to say, "No. We are going to let innovation go forward."
When there is a problem, we are not going to come blame the agency for the problem. We are going to say, "You know what? When we make progress in society, when we innovate, sometimes some bad things happen, and we try to minimize the bad things and maximize the good things, but you can't move forward without having some things happen that you might not have anticipated."
Again, we try to minimize the harm, but we really do want to make sure we have open doors to innovation, so we need to give the SEC permission to say, "We are putting in rules to make sure people get the disclosure they need, but we can't promise if you invest in this particular thing or that particular thing it's going to work out well for you." You have to ask questions, and you have to do your own homework as an investor, and we will just make sure you have the information you need to make those decisions.
ETHNews: You have a kind of cult following on reddit and Twitter. How do you feel about being viewed as the crypto champion of the SEC?
HP: What I'm trying to champion is that we have a country full of people who have fascinating ideas and really are looking at ways they can change the world. I love the idea that part of the mission at the SEC is to make sure our capital markets work well so that people who have great ideas can find people who will fund those great ideas.
I like the idea of being the champion for our capital markets working well – and working well for old technologies and new technologies – and for people with new ideas. To me, what is exciting is that there are all these people out there who have really looked at the world and thought of a new way to do things, and I just want to make sure that we, as an agency, are not standing in the way of that.
The Winklevoss ETF may have been shot down, but not all hope is lost. It's possible Commissioner Peirce's efforts may eventually lead to cryptocurrency-related products being evaluated according to their merits and their adherence to established SEC regulations, rather than underlying markets. The battle is far from over.