Hester Peirce (SEC Commissioner), is well-known for her support of the industry and being known as “crypto mama” because she criticized the US’ top securities regulator for not allowing spot bitcoin ETFs to be approved. She stated that the agency should have provided clear guidelines and regulatory clarity to exchanges and funds looking to launch such products.
Spot Bitcoin ETPs
She urged the Commission to stop “denying” spot cryptocurrency exchange-traded products in her latest speech, which was published online by the SEC. She stated that bitcoin has become a mature, liquid asset that attracts investors of all backgrounds over the past 13-years.
The adoption rate of institutions is increasing and spot-based ETPs are being approved in Canada and other countries, so the Commission should keep up with the pace.
She stated that all futures-based Exchange-Traded Products (ETPs), were approved under the 1940 Act until this year. The Commission approved in April the first non-1940 Act ETP that held bitcoin futures to be listed and traded on an exchange.
Peirce believes that the SEC has been inconsistent in its standards. In 2021, it approved a bitcoin futures-based ETF and insisted on the listing of a spot product.
Peirce addressed the SEC’s concerns about market manipulation, fraud and the underlying Bitcoin market. He explained that spot ETPs and futures are fundamentally similar products. One should be granted if the other is possible.
“The reasoning behind the Commission’s refusal of spot bitcoin ETPs approval is itself broad and conclusive, making it difficult to see how approval could have been achieved.”
Peirce also refuted the notion that spot bitcoin ETP could expose retail investors to a potentially risky asset, as she believes that they could still gain exposure to bitcoin via other channels. She suggested that the authority should view it as a complement to the increasing demand for primary cryptocurrency and not as an obstacle to funds and exchanges launching such products.
“Depending on the design of this product, retail investors could gain exposure to bitcoin through a securities program that, due to the efficient ETF arbitrage mechanism, likely would closely track the spot bitcoin price. This fund would likely be easy to manage, and fees could be very low.
Additionally, she criticized the watchdog’s efforts to create a regulatory framework by means of enforcement action. She cited the recent BlockFi settlement of $100m with the SEC, 32 states, and other examples of enforcement actions that were cutting ahead of the regulatory process.
Grayscale Fights with the SEC
Grayscale, the largest Bitcoin fund in the world, has publicly expressed interest in launching a bitcoin ETF. They have pressed the top watchdog to allow such a long-delayed product release. The fund threatened to sue the SEC if the ETF is not approved by the agency again earlier this year.
Grayscale CEO Michael Sonnenshein held a similar view to Peirce’s. He felt that the Commission failed to treat two products equally – spot and futures ETFs – through an equivalent criterion. He argued that Grayscale’s application may be invalidated by the Administrative Procedure Act if it is rejected.
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