Commissioner statements on bitcoin ETF approvals signal contention among SEC leaders

The bumpy roll-out of US Securities and Exchange Commission approvals of a slate of spot bitcoin ETFs was followed by public statements from all but one of the agency’s voting leaders.

According to the SEC, the proposals drew votes of approval from Gensler, Peirce and Uyeda. Crenshaw and Lizárraga dissented. A 3-2 majority is needed for approval.

Notably, the SEC published four public statements from the commissioner team, including one from Chair Gary Gensler. The statements came after the agency approved 11 bitcoin ETFs via Commission vote.

Commissioners Hester Peirce and Mark Uyeda made statements of approval, and voted in favor, though both Peirce and Uyeda criticized the process by which the SEC reached its decision. By contrast, Commissioner Caroline Crenshaw sharply dissented from the approval order.

The only commissioner who stayed mum on the approvals as of the time of publication was Jaime Lizárraga.

Gensler himself voted in favor of approval, but his statement included language strongly critical of the market underlying such products.

“I feel the most sustainable path forward is to approve the listing and trading of these spot bitcoin ETP shares,” Gensler wrote, adding that bitcoin is “a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion and terrorist financing.”

“While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin,” he wrote.

The contents of the statements suggest significant divisions among the agency’s five-person leadership team on the regulatory merits of spot bitcoin ETFs and oversight of the crypto space more broadly. The SEC, under Gensler’s leadership, has drawn strong criticism from multiple quarters, including Congress, the crypto industry and its lobbyists, as well as from within the commissioner team itself.

Indeed, in her statement, Peirce said that the agency has committed “many harms” for its years-long refusal to approve proposals to create and list spot bitcoin ETFs.

“We squandered a decade of opportunities to do our job. If we had applied the standard we use for other commodity-based ETPs, we could have approved these products years ago, but we refused to do so until a court called our bluff,” Peirce wrote. “And even now our approval comes only begrudgingly, as demonstrated by our continued insistence that these products satisfy a correlation test we have not demanded of prior commodity-based ETPs.”

Uyeda, though assenting to the approval order, said he had “strong concerns” with certain features of the approved products. Each bitcoin ETF will operate under cash-redemption, which, Uyeda said, are less efficient than their in-kind redemption counterparts.

“The Approval Order is absent of any analysis as to how the cash-only creation and redemption feature helps to prevent, or perhaps promote, fraud,” Uyeda wrote. “The removal of in-kind creations and redemptions — coupled with the fact that no other commodity-based ETP prohibits in-kind creations and redemptions — makes one wonder how the Commission reached its conclusion.”

The Ark and 21Shares Bitcoin Trust, which was the filing the agency had to rule on by Wednesday, had originally vyed the agency to use in-kind creation and redemption, but later amended to become cash-only. The switch, and the nature of the other approved ETFs, signals that cash-only was not the issuers’ first choice.

“Even though the Commission is approving the listing applications in this instance, the underlying analytical approach effectively amounts to merit regulation,” he wrote. “Thus, the flawed reasoning in the Approval Order could reverberate for years to come.”

Crenshaw strongly criticized the approval decision, writing that “[t]hese Commission actions are unsound and ahistorical.”

“I am concerned that these products will flood the markets and land squarely in the retirement accounts of US households who can least afford to lose their savings to the fraud and manipulation that appears prevalent in the spot bitcoin markets and will impact the ETPs,” Crewnshaw argued. “I am concerned that today’s actions will create the imprimatur of Commission approval and oversight of the underlying spot markets when really no such oversight exists.”

Notably, Crenshaw stressed that she finds the ethos behind bitcoin and cryptocurrency compelling, noting that “[m]any of the goals of the crypto ecosystem are goals I support. How can you be against freedom and prosperity?”

“But when I look at products like the ones at issue in today’s approval, I have a simple question: Wasn’t bitcoin supposed to solve this?” Crenshaw continued. “If the technology is so revolutionary, why do so many of its uses seem to revolve around recreating the existing financial system, except with less regulation, more opacity, fewer investor protections and more risk?”

“I fear that our actions today are not providing investors access to new investments, but instead providing the investments themselves access to new investors in order to prop up their price,” Crenshaw went on to write.

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