SEC, the Winklevi and the Bitcoin Boogeyman
On Thursday, Tyler and Cameron Winklevoss’ proposed rule change to allow for the creation of a bitcoin exchange-traded fund (ETF) was once again denied. The bitcoin market reacted accordingly (i.e., sell-off). If you’re not a follower of the efforts on all fronts to make the crypto space more inviting for institutional money, you probably don’t know that this is just a footnote in what is shaping up to be a long saga (for the Winklevi and institutional investors generally). However, this week’s news is not really news or surprising as the Winklevi were previously denied earlier this year.
Many have argued that the SEC’s refusal to grant authority to create bitcoin ETFs is actually counterproductive. The thought is that ETFs will give investors (retail and institutional alike) the ability to gain exposure to bitcoin without the hassle of exchanges and wallets and keys and so on and so forth. ETFs also open up the markets to investors that can only hold securities (think: retirement accounts and mutual funds). According to the SEC, bitcoin’s most significant markets are unregulated overseas markets that are subject to price manipulation so the argument cuts both ways. One position is that by allowing these types of ETFs, this will bring additional regulatory oversight to a vastly unregulated space.
So what does all of this mean? Well, for starters, the SEC (and lawmakers generally) can’t seem to bring itself to get past bitcoin’s shady start. They will probably continue to discourage adoption of, or investment in, bitcoin and other cryptocurrencies until the heavy-hitting institutional money forces them to reconsider. Until then, we’re likely to continue to hear the boogeyman buzzwords such as “manipulation” and “nefarious purposes” as a basis for their positions. These are certainly valid concerns but they're certainly not exclusive to cryptocurrency.
There was a ray of light in the SEC decision: an interesting dissent. I won’t spoil all the fun for you but here are the key takeaways: the proposed change is consistent with the Securities Exchange Act, the disapproval inhibits institutionalization, and it also dampens innovation (all fair points). You can read Commissioner Peirce’s dissent here.