Category Archives: Hester Peirce

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SEC Commissioner Peirce: ETF “Definitely Possible”

In a podcast aired on 24 November, SEC commissioner Hester Peirce has commented that the launch of a future cryptocurrency ETF is “definitely possible”.

Her comments could signal a change in the SEC’s stance on ETFs which until now have failed to get through the regulator’s screening process.

However, the comments by Peirce are her own, as she makes clear in the podcast, and not necessarily those of the SEC as a whole. Nonetheless, the commissioner has pointed out that she sees “significant intellectual capital” being invested by both institutional investors and exchanges towards the development of a Bitcoin ETF.

It is worth noting that Peirce represents one-fifth of the SEC’s regulatory body in terms of managing the entire regulatory landscape environment for security investments in the United States, so her views carry significant weight in terms of being a mouthpiece for the government body.

Peirce is perhaps better known for her criticism of how the SEC handled the Winklevoss twins’ rejected application for an ETF in July of this year. At the time, she commented:

“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.”

She added that she felt that the SEC in general treats innovation with caution, feeling that the body maintains it is safer to simply “put the brakes on” than to approve ETF applications. The commissioner suggests that the SEC needed to figure out a way of being less cautious and letting “innovation go forward” rather than being concerned about criticism if projects fail.

The ETF debate is a topical one at present, particularly with Bitcoin struggling to find any stability in the market, and along with the adoption of cryptocurrencies by institutional investors, the approval of ETFs is now being seen as the industry’s saving grace.

 

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Congress Requests SEC Clarify Crypto Security Laws to Support Innovation

The United States Congress has sent a letter to the Securities and Exchange Commission (SEC) requesting that the agency clarify crypto security guidelines, to support innovation and to lessen the increasingly tense mood in the crypto space caused by widespread crackdowns led by the SEC.

Congress says they believe crypto is important for many sectors of the United States economy, and that the SEC’s view that all cryptos are securities, besides Bitcoin and Ethereum, is leading to an exodus of crypto and blockchain companies and talent from the United States. Congress is concerned that the United States will fall behind in the crypto and financial technology sectors due to the SEC’s behavior, explicitly stating that the SEC is inhibiting innovation by using law enforcement instead of making the rules better and easier to understand. Congress explicitly demands the SEC clarify guidelines by making them more articulate and improving them.

Currently, the SEC’s definition of a security cryptocurrency is any crypto which is purchased by investors from a centralized organization with the expectations of profits from their investments. Congress believes this classification is too broad since it basically includes all cryptos besides perhaps Bitcoin and Ethereum as security within that definition. Congress is asking the SEC to expand on its definition of crypto securities and to reference the Securities Act and Howey Test in its response. Furthermore, Congress wants the SEC to create easy to understand educational materials, like FAQs and examples, so crypto users aren’t confused.

Congress wants the SEC to create new guidelines to clarify how a crypto can transition from a security to a non-security due to decentralization, which is what happened with Ethereum. There are probably several cryptos launched with initial coin offerings (ICOs) that are sufficiently decentralized to not be considered securities that would still be called securities by the SEC due to the broad definition that is currently in place.

In the letter, Congress gives a shout out to SEC Commissioner Hester Peirce, who has stood up for crypto rights, unlike other SEC commissioners. Some people in the crypto space have labeled her ‘crypto mom’ for her nurturing attitude towards crypto.

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SEC Commissioner Says Bitcoin ETF Rejection Hurts Investors, Stifles Innovation

There has been a large amount of enthusiasm in recent months across the crypto space that the United States Securities and Exchange Commission (SEC) would approve a Bitcoin exchange traded fund (ETF), which would effectively put Bitcoin on the stock market, and make it easy for institutional investors to buy Bitcoin on all the major stock trading platforms.

However, these hopes were shot down when the SEC rejected the Winklevoss Bitcoin Trust ETF in a 92-page document detailing how the underlying Bitcoin market was not mature or safe enough to approve any Bitcoin ETF. This is combined with the revelation that the VanEck SolidX Bitcoin ETF, which is similar to the Winklevoss Bitcoin Trust, can have its decision delayed until 2019. One of the SEC commissioners who voted on the ETF, Hester Peirce, has issued a dissenting opinion that the SEC made the wrong choice, overstepped its bounds, and didn’t do its job.

SEC commissioner Peirce says, “The Commission’s action today deprives investors of this choice. I reject the role of gatekeeper of innovation—a role very different from (and, indeed, inconsistent with) our mission of protecting investors, fostering capital formation, and facilitating fair, orderly, and efficient markets. Accordingly, I dissent.”

Additionally, Peirce argues that approving a Bitcoin ETF would have created a channel for transparent and regulated investment into Bitcoin, which would protect investors. Not approving the ETF would ultimately keep investments outside of properly regulated channels and harm Bitcoin investors. This is quite the opposite of SEC’s mission to protect investors.

The SEC rejected the Winklevoss Bitcoin Trust based on the dynamics of the underlying Bitcoin market, not on the merits of the ETF itself. Peirce says that the ETF would have been able to follow all of the SEC rules and regulations to ensure lack of market manipulation and that it wasn’t appropriate for the SEC to reject the ETF based on the underlying market.

Winklevoss Bitcoin Trust had a surveillance agreement in place with the Gemini exchange, which Peirce thinks is sufficient because the ETF’s price would have been based on Gemini’s Bitcoin spot price. The SEC demanded surveillance agreements with larger Bitcoin exchanges outside of the United States, which is impractical and not necessary. According to Peirce, the SEC analyzed the Bitcoin market with methods used to analyze other commodity markets that are fundamentally much different, which is inappropriate.

The SEC left the door open for the approval of a Bitcoin ETF in the future if the Bitcoin market matures. Peirce thinks the SEC is slowing down the maturation of Bitcoin by keeping institutional investors out of the market.

The SEC commissioner sees that Bitcoin has numerous unique characteristics that make it worthy of being an investment mechanism, including its electronic nature which facilitates transparency and competition. Bitcoins are interchangeable so investors always get the same thing when they purchase it, and Bitcoin mining is worldwide, insulating it against geopolitical threats, unlike other commodity markets which can be damaged and manipulated by a single country.

 

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