SEC Bent Rules for Spot Bitcoin ETF Approval: Commissioner Uyeda

The United States Securities and Exchange Commission approved listing several spot bitcoin exchange-traded funds (ETFs) in October 2022, which was seen as a landmark crypto event. 

However, SEC Commissioner Mark Uyeda recently revealed concerns regarding preferential regulatory treatment and the legal analysis underpinning the approval order.

SEC Commissioner Airs Objections to Aspects of Landmark Approval Order

Soon after the United States Securities and Exchange Commission (SEC) approved several fund managers to list spot bitcoin 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 long-awaited approvals of the spot bitcoin ETF applications. However, he criticized the commission’s analytical approach underlying its decision. Fearing that the SEC’s rationale and legal analysis could set a troubling precedent, Uyeda stated:

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

Failed to Treat Bitcoin Like Other Commodities

According to Commissioner Uyeda, the SEC should have seized the chance to finally classify and regulate spot bitcoin exchange-traded products (ETPs) as standard commodity assets like gold or oil ETPs. Instead, over several years, the commission imposed its specially devised “significant market” test exclusively on spot bitcoin ETF applications to assess whether adequate market size and liquidity exist to support a bitcoin ETP.

Uyeda argued that by setting up unique goalposts like prolonged inquiries into significant bitcoin market size – despite its clear growth – the SEC deliberately singled out spot bitcoin ETF filings for exceptional scrutiny compared to ETPs on other commodities.

“By holding spot bitcoin ETPs to a novel approval standard that applied to no other commodity, the SEC ensured a years-long purgatory for all spot bitcoin ETP applicants while demand continued rising unabated. Under rules for commodity ETPs in general, these spot bitcoin products should have been permitted long ago,” Uyeda asserted.

No Explanation for Differential Treatment

Uyeda further claimed that the approval order provides no explanation for why the SEC treats spot bitcoin ETFs differently than bitcoin futures ETFs under the “significant market” test.

While none of the BTC ETF applicants satisfied the SEC’s significant market test, the SEC’s approval cited “other means” that met the requirements.

Uyeda said the SEC invented a new standard after forcing applicants to spend years pursuing the “significant market” requirement without clarity.

First-Mover Objective Takes Priority

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 such approval orders must provide transparency in their analysis and reasoning.

However, given his independent reasons for concluding that the applications satisfy the Exchange Act’s standards, Uyeda supported issuing the Approval Order despite objections around aspects of legal analysis.

Conclusion

SEC Commissioner Mark Uyeda’s published statement suggests some dissent within the commission regarding the logic applied in greenlighting spot bitcoin ETFs. 

His critique centers on preferential treatment compared to other assets and a lack of transparency behind specific rationale used in the approval order.

With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.