Last month, the U.S. Securities and Exchange Commission (SEC) shot down the Winklevoss brothers’ bid to bring a Bitcoin ETF to a regulated US exchange causing markets to plummet.
In the months leading up to the decision, there had been many signs of regulators warming up to cryptocurrencies. Thus, crypto investors had been optimistic for the application’s approval and were eagerly anticipating the influx of institutional money it would bring to the market.
When their bid was denied, this was seen as a damaging blow to cryptocurrencies’ acceptance as a legitimate asset class, which hurt many crypto industry participants even more than the market fall.
However, the ruling was not without controversy, even from within the SEC. Shortly after the bid was publicly denied, one SEC Commissioner came out with a formal dissent from the decision.
While the official stance from the SEC was that the Winklevoss application was denied because of concerns with certain risk factors in Bitcoin itself, Commissioner Hester M. Peirce argued that if the same criteria from this denial were applied to other approved commodities, they too would need to be rejected.
A common theme we discuss here on Crypto Law Insider is that regulators are not free actors. They cannot act based on their independent judgement, and are instead subject to numerous pressures from within their organization, other regulatory bodies, and more. The Commissioner’s dissent not only reinforces this fact, but also reveals the ideological divide within the SEC.
In the crypto community, we tend to hang on to every word that SEC Commissioners say. But a Commissioner can say one thing today and then another Commissioner can contradict them the next day. This demonstrates the importance of not looking at what any one particular commissioner says as something to take action on.
Instead, it is important to look at the rulings in their entirety and the overall direction of regulation. As we have seen frequently over the past few years, the path to regulatory certainty over crypto may take many unpredictable turns. Nonetheless, we are still on a course.
Even though the Winklevoss application was rejected today, it wouldn’t be very surprising if a different bid were accepted in a month. In fact, given that the SEC is scheduled to review nine similar applications in the next few months, it is highly likely that at least one will get through.
What does this mean for Crypto Law Insiders?
While at times it may seem that the SEC is pushing forward a calculated agenda, we can see from this example how that’s not the case. SEC regulators are not free actors and on top of that they are not unified in their decisions. This ideological divide within the SEC has now shown itself publicly.
Overall, the Winklevoss ruling is not a total loss. We now have a Commissioner on record in favor of Bitcoin being accepted as an exchange tradable product. This paves the way for future acceptance, as her opinion will be taken into future decisions that are made.
For those who understand how the SEC really operates, inconsistencies, split decisions, and small reversals are to be expected.
As an Insider, the goal is to not overreact when you see something like this rejection. We are still on the path to regulatory certainty, but for now you just have to roll with the punches.