SEC bent rules for spot Bitcoin ETF approvals — Commissioner Uyeda

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Soon after the United States Securities and Exchange Commission (SEC) approved the applications of several fund managers to list spot Bitcoin (BTC) exchange-traded funds (ETFs), SEC Commissioner Mark Uyeda published a statement revealing “strong concerns” with three aspects of the approval order.

Uyeda voted in favor of the landmark approvals of the Bitcoin ETF applications. However, he criticized the underlying analytical approach by which the commission reached its decision. Fearing that the SEC’s rationale and legal analysis could set a precedent for the future, Uyeda stated:

“The flawed reasoning in the [spot Bitcoin ETF] Approval Order could reverberate for years to come.”

According to Uyeda, the SEC missed out on the opportunity to treat Bitcoin like any other commodity. Instead, the commission historically singled out the Bitcoin ETFs after they failed to satisfy its novel “significant size” test. 

“Under that standard, spot Bitcoin ETP [exchange-traded product] applications should have been approved long ago,” he argued. Uyeda further claimed that the approval order provides no additional explanation for why it continues to treat spot Bitcoin ETPs differently than Bitcoin futures ETPs under the “significant market” test.

Related: Spot Bitcoin ETF receives official approval from the SEC

While none of the BTC ETF applicants satisfied the SEC’s significant market test, the SEC’s approval cited “other means” that satisfied the requirements. Uyeda said that the SEC invented a new standard after forcing applicants to spend years pursuing the “significant market” requirement. He added:

“Rather than requiring applicants to make multiple attempts in the dark in hopes that they might finally present an argument leading to approval under the ‘significant market’ test, the Commission should have actively made its expectations known.”

Uyeda also believes that the SEC’s motivation for accelerating the spot BTC ETF approvals was to get a first-mover advantage. While pointing out the lack of analysis on how the cash-only creation and redemption feature could prevent fraud, he said that such approval orders, in general, must provide transparency in their analysis and reasoning.

“However, because I have independent reasons for concluding that the applications satisfy the standards for approval set forth in the Exchange Act, I support the issuance of the Approval Order despite my objections to the legal analysis set forth in that order,” he concluded.

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