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Who Needs a Bitcoin ETF? Crypto Scoffs at SEC Rejections

Over the past two days, the narrative on bitcoin exchange traded funds (ETFs) in the U.S. has felt like a rollercoaster.

Up until Wednesday, all eyes were watching for a final decision on two futures-backed bitcoin ETF proposals set to be listed on the New York Stock Exchange (NYSE) and created by ProShares.

However, the resulting decision not only shot down ProShares’ twin proposals, but five others like it by Direxion and another two by GraniteShares, with the latter to be listed on the Chicago Board Options Exchange (Cboe).

Then, as if matters had not been rousing enough, the SEC announced the following day a petition to review all nine disapproval decisions in accordance to Rule 431(e) of the Commission’s official “Rules of Practice,” noting that until such a time the review is complete all such decisions would be stayed.

In truth, it isn’t as if the SEC has never turned around to re-examine their rulings in a similar manner before. Just last month, the results of one such review over the Winklevoss bitcoin ETF was released, ultimately re-affirming the initial rejection.

Still, the fallout from this week’s events on the matter of regulatory approval over a bitcoin ETF has left many in the crypto community jaded over what feels to be a continuing uphill battle.

In fact, some have taken to Twitter in accusing the agency, in part jokingly, of using their powers of regulatory disapproval then review to “stress test” the bitcoin markets.

To be fair, market manipulation was a key reason specified for the initial disapproval of all nine ETF proposals, though to the wider crypto community this decision was taken primarily as a barrage of attacks by the agency deliberately meant to hinder the growth of the industry.

A Glimmer Of Hope?

Interestingly enough, the SEC did stop just short of handing down a rejection on all ten bitcoin ETF proposals said to be decided upon in the next two months. One remains in this respect put forth by VanEck and SolidX for a physical bitcoin ETF that commentators in the past have touted as being the strongest candidate of the batch.

As such, coupled with the reality that technically the other nine disapprovals are now pending under SEC review, certain commentators on Twitter see the culmination of this week’s events as reason to believe there might just be a major reversal of fortune in coming weeks.

Who really cares?

Yet, important to note in the midst of the discussion, is a strain of bitterness expressed by some regarding all the hubbub and attention bitcoin ETFs have been sparking as of late. The reoccurring critique by such commentators being that bitcoin ETFs aren’t all that interesting, let alone, necessary for the continued growth of crypto markets.

As such, to the ones that hold bitcoin as an asset otherly in nature from mainstream financial assets and not compatible in the guise of institutional investment vehicles such at ETFs, the rejections by the SEC have been touted as “a blessing in disguise” and a decision for review as nothing more than “overrated” news.

Agree or disagree, for the time being, regulatory approval over a bitcoin ETF remains highly speculative here in the U.S.

For “TenaciousJ” that means one simple fact:   

Computer image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Crypto Isn’t Just Money – It’s a Defense Against Discrimination

Sonya Mann works in communications and marketing at the Zcash Foundation, a financial privacy non-profit. She is a former technology journalist.

For Americans, it can be easy to discount the social relevance of censorship-resistant digital assets like bitcoin.

Unlike people living under authoritarian regimes, we are free to enter into commercial transactions how and when we like, right?

Well, not always.

Many Americans find themselves unable to access the financial system for political reasons. It’s a frustrating experience that cuts across ideological lines. Common targets of financial exclusion include sex workers (regardless of whether their work is legal), drug users and — oddly enough — gun rights organizations.

New York vs. the NRA

For a recent example, look to the National Rifle Association and its run-in with New York State.

Although the NRA is a controversial organization, prone to selective advocacy and partisan rhetoric, the group’s activities are indisputably legal. Freedom entails being able to say and do controversial things, especially when those things are explicitly protected by the Constitution.

The NRA’s mission is to protect and promote Americans’ right to keep and bear firearms. The organization likes to bill itself as the oldest civil rights advocacy group in the country. So, readers may be surprised that the NRA claims to have struggled to access financial services. In May, the non-profit decided to sue governor Andrew Cuomo and the state’s Department of Financial Services.

“The NRA presented as evidence an April letter from Maria Vullo, the DFS’s superintendent, warning banks under her purview about the ‘reputational risk’ of doing business with gun-rights groups,” according to National Review. “The state also pressured the companies behind the scenes, the group claims.”

If these allegations are accurate, it’s an echo of the Obama administration’s Operation Choke Point, in which the government put pressure on banks to stop enabling legal but disapproved-of businesses. In 2014, the US House of Representatives’ Committee on Oversight and Government Reform found that the initiative was intended “to deny [certain] merchants access to the banking and payments networks that every business needs to survive.”

The committee’s report noted that “bank regulators labeled a wide range of lawful merchants as ‘high-risk’ — including coin dealers, firearms and ammunition sales, and short-term lending.” Thereby, “Operation Choke Point effectively transformed this guidance into an implicit threat of a federal investigation.” The effort was deemed an illegal abuse of power by the Department of Justice, and eventually shut down.

Yet even upstream of payment processing, e-commerce platforms like Shopify are kicking off gun-related merchants. “We have invested more than $100,000 in the development of our Shopify store, which will disappear once these policies go into effect,” said Cole Leleux, the general manager of firearms dealer Spike’s Tactical, in an interview with the Daily Wire. A platform like OpenBazaar not only wouldn’t do that, it wouldn’t be able to, because the marketplace is designed to prevent top-down censorship.

When it comes to reputational risk, many banks would be wary of serving someone like dissident gunsmith Cody Wilson, whose projects include publishing free weapons schematics and selling machines for the home manufacture of firearms. His activities are legal, and in fact, litigation comprises much of his activism. But Wilson is a radical, and finance firms tend to eschew radicalism. (That is a problem in-and-of-itself, but we’ll leave it aside for now.)

By contrast, the NRA is a longtime figure of the establishment. It doesn’t just work within the system; the NRA is the system. It has close ties to politicians and firearm manufacturers alike. Whether or not you like guns or the Second Amendment, it should be alarming when a legacy institution as entrenched as the NRA is turned away by financial service providers, especially as a result of state pressure.

That financial discrimination shows just how precarious Americans’ rights are in actual practice. What if a financial regulator decided that the ACLU’s First Amendment advocacy was distasteful, and jeopardized the group’s ability to accept donations?

The point is not that every bank should be forced to work with the NRA. For some banks, refraining from doing business with the NRA may make commercial sense. If the reputational risk, or cost of monitoring compliance, outweighs the revenue that a financial services company can garner from a controversial client, it’s a rational business decision to drop that client.

An imperfect solution

However, the NRA’s case demonstrates the critical need for permissionless financial infrastructure. A truly open financial system would mitigate the state pressure brought to bear against private organizations that advocate for Americans’ constitutional rights. It would also protect provocateurs like Cody Wilson, who may pose a legitimate threat to the PR and marketing needs of a traditional, centralized bank.

Cryptocurrency is the solution to financial exclusion — if an imperfect one at present. Anyone in the space knows that the promise of a robust parallel system has yet to be fulfilled. Usability and adoption remain low. Bitcoin privacy is far from perfect (although it is steadily evolving, and alternate options like zcash and monero are available). The tax and regulatory environments remain intimidating, which is a huge problem for merchants.

And yet, despite all those caveats, cryptocurrency continues to hold the promise of financial freedom. The cypherpunk approach is not to rely on the government upholding the Bill of Rights, but to write code that will guarantee those liberties cannot be taken away. Cryptocurrencies that are trustless and distributed already provide an incredible advantage: You can exchange value, even across great distances, without having to do a song and dance for a gatekeeper.

In this bear market, it’s important to remember the revelatory nature of Satoshi Nakamoto’s innovation. Freedom entails being able to say and do controversial things — and when it’s true freedom, you don’t have to beg for permission first.

The author thanks Andrew Glidden, Preston Byrne, Jon Stokes and Robert Mariani for reviewing an early draft of this article.

U.S. Constitution image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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What an SEC Bitcoin ETF Rejection Review Really Means

The U.S. Securities and Exchange Commission (SEC) announced Thursday that nine bitcoin exchange-traded fund (ETF) disapproval orders are to be stayed until further review.

Referencing Rule 431 of the Commission’s Rules of Practice, the SEC said in a series of letters that it would reconsider the three rejections made by the U.S. regulator’s staff.

But what does it mean when the Commission says it will “review” the disapproval orders? And what implications does that decision have for the proposed bitcoin ETFs themselves?

According to the Rules of Practice, the Commission may effectively “affirm, reverse, modify, set aside or remand for further proceedings, in whole or in part,” which technically means the end of this batch of bitcoin ETFs is not final.

Jake Chervinsky, a defense and litigation lawyer for Kobre and Kim LLP, told CoinDesk the petition for review was likely “initiated by a member of the Commission” as no indication on the SEC’s web page points to action taken by either of the two exchanges responsible for the ETF filings – the Chicago Board Options Exchange (Cboe) and New York Stock Exchange (NYSE).

In effect, it only takes the vote of one Commission member to start a petition for review, and as indicated in the Rules of Practice, once granted, “the Commission shall set forth the time within which any party or other person may file a statement in support of or in opposition to the action made by delegated authority.”

With further commenting underway, as Chervinsky points out, the specific body responsible for gathering the additional information and ultimately setting the record straight is now the three SEC commissioners and Chairman Jay Clayton.

And, perhaps most notably, the SEC leadership only just recently issued a decision following a separate review of a past bitcoin ETF rejection for the proposal by investors Cameron and Tyler Winklevoss.

Past example

The Winklevoss bitcoin ETF was denied initially in March of last year, seemingly ending a multi-year effort to create a “physically” backed bitcoin fund into which investors could buy stakes.

After the SEC’s staff pushed back against the idea, the Bats BZX exchange, which filed the proposed rule change allowing for the bitcoin ETF, petitioned for a review.

More than a year after the review began the SEC’s commissioners came to the decision that the ruling to disapprove would not be overturned, affirming “BZX has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5).”

At the time, Commissioner Hester Peirce wrote a letter of dissent disagreeing with the outcome of the review.

Her arguments – that the SEC should be focused on disclosure rather than playing “gatekeeper” to the market – will likely be raised again during deliberations on the current set of bitcoin ETF proposals put forth by Direxion, GraniteShares and ProShares.

Past reviews have taken anywhere between six to 16 months, Chervinsky affirmed, and the Rules of Practice do not set a strict deadline for the SEC, making it “hard to predict” how long this particular review will take.

Chervinsky told CoinDesk:

“Given the nature of yesterday’s decision and the fact that the commissioners so recently handled the Winklevoss appeal, I don’t think it will take long to finish this review.”

Regardless, the announcement of the review was largely well-received by individuals such as GraniteShares CEO Will Rhind, whose firm is now among those waiting for a final answer from the SEC’s highest ranks.

“It’s a positive development and we look forward to engaging with the SEC commissioners on this matter,” Rhind told CoinDesk.

Document review image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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WeChat, Alipay to Block Crypto Transactions on Payment Platforms

Chinese mobile payment platforms WeChat Pay and Alipay are scrambling to keep up with regulators after recent announcements regarding initial coin offerings (ICOs) and cryptocurrencies.

Both payment giants have said that they will work with the government agencies closely to monitor cryptocurrency transactions, according to news releases on August 24.

As CoinDesk reported on Friday, five high-level regulatory agencies in China – including the People’s Bank of China and the Banking Regulatory Commission – issued a warning against any cryptocurrency-related fundraising and trading activities.

In a release published by Tencent, the parent company of WeChat Pay, not long after the news came out, the company said that it has come up with three main measures to regulate any “problematic” platforms related to ICOs and cryptocurrencies.

Specifically, the tech giant said that it will prohibit users from using WeChat payments to make any virtual currency-related transactions. Moreover, it will conduct both real-time monitoring of daily transactions and risk assessment of any suspicious transactions.

At the same time, in an exclusive interview with BJ News, a local news outlet based in Beijing, Alibaba Group affiliate Ant Financial, which owns Alipay, said that depending on the situation, it will restrict or permanently ban any personal Alipay accounts that are involved in cryptocurrency transactions.

Image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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SEC Says It Will ‘Review’ Bitcoin ETF Rejections

The U.S. Securities and Exchange Commission (SEC) has said it will review the disapproval orders for nine bitcoin ETFs issued on Wednesday.

As CoinDesk previously reported, SEC staffers rejected proposals from three companies – Proshares, GraniteShares and Direxion – in a triple-set of orders published late yesterday. Now, according to the letters, senior SEC officials will review those orders, though it’s unclear at this time when the review will be completed.

As SEC secretary Brent Fields wrote in a letter addressed to NYSE Group senior counsel David De Gregorio:

“This letter is to notify you that, pursuant to Rule 43 I of the Commission’s Rules of Practice, 17 CFR 20 I .43 1, the Commission will review the delegated action. In accordance with Rule 431 (e), the August 22 order is stayed until the Commission orders otherwise.”

“The Office of the Secretary will notify you of any pertinent action taken by the Commission,” Fields added. Similar language was used in two others letters, including another sent to NYSE Group and Cboe Global Markets.

The news was announced by commissioner Hester Peirce, who notably dissented from a decision last month that saw the SEC shoot down, for a second time, a proposed bitcoin ETF from investors Cameron and Tyler Winklevoss.

In a follow-up tweet, Commissioner Peirce explained the steps to come as the SEC moves to review the decisions.

“In English: the Commission (Chairman and Commissioners) delegates some tasks to its staff. When the staff acts in such cases, it acts on behalf of the Commission. The Commission may review the staff’s action, as will now happen here,” Peirce wrote.

The three letters can be found below:

Direxion Letter by CoinDesk on Scribd

GraniteShares Letter by CoinDesk on Scribd

ProShares Letter by CoinDesk on Scribd

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.