Crypto Markets Cheer As Commissioner Hester Peirce Announces That SEC Will Review August 22nd Decision to Reject 9 Bitcoin ETFs

On 23 August 2018, one day after U.S. Securities and Exchange Commission (SEC) staffers rejected (via three disapproval orders) a total of nine Bitcoin ETFs proposals from ProShares, Direxion and GraniteShares, SEC Commissioner Hester Peirce (the only Commissioner who dissented from the decision last month to reject for the second time the Winklevoss Bitcoin ETF) announced that the SEC has "stayed" (or put on hold) these orders, and that it is going to review these disapproval orders.

She announced the news (around 20:26 UTC) via the following tweet:

The link in this tweet is to a letter sent by Brent Fields, the SEC's Secretary, to Eugene Schlanger, Counsel for NYSE Group. This letter, which has to do with the rejection of the five Bitcoin ETFs from Direxion, contains the following important paragraph:

"This letter is to notify you that, pursuant to Rule 43 1 of the Commission's Rules of Practice, 17 CFR 201.431 , the Commission will review the delegated action. In accordance with Rule 43 1 (e), the August 22 order is stayed until the Commission orders otherwise."

Two other similar letters, with regards to the Bitcoin ETFs from ProShares and GraniteShares, were also sent out: the ProShares letter was sent to NYSE Group just like the Direxion letter (but this time to David De Gregorio, Senior Counsel); and the GraniteShares letter was sent to Kyle Murray, Assisant General Counsel for Cbloe Global Markets

The Direxion and the ProShares letters were sent to the NYSE Group because in these two cases, the proposed rule changes came from NYSE Arca ("the top U.S. exchange for the listing and trading of exchange-traded funds"), which was going to be the exchange to list and trade the shares of the Direxion and ProShares ETFs. The GraniteShares letter was sent to Clobe Global Markets because for those two ETFs, the proposed rule change to list and trade their shares came from Cboe BZX (an exchange that is part of Cboe Global Markets).

Less than an hour after her first tweet, Commissioner Peirce sent this follow-up tweet:

It is not clear how long the Commission's review of the delegated actions will take, with all three letters ending with the following sentence:

"The Office of the Secretaty will notify you of any pertinent action taken by the Commission."

The reply to this tweet by former SEC Commissioner Michael Piwowar (who resigned last month) was quite interesting:

American lawyer Jake Chervinsky (who has been providing excellent commentary on decisions of the SEC regarding Bitcoin ETFs) agreed with Michael Piwowar, and made the following comment on Twitter:

"Don't get too excited, folks. Under Rule 431 of the SEC's Rules of Practice, it only takes a single Commissioner to order a review like this. @HesterPeirce deserves credit & respect for putting up a fight, but there's no reason to think yesterday's rejections will be reversed."

What Chervinsky is referring to is Rule 431 ("Commission consideration of actions made pursuant to delegated authority"), which you can learn more about in the SEC's "Rules of Practice" document.

As for how a futures-based Bitcoin ETF could cause the BTC price to go up, Twitter user "Nik Bhatia" offered one potential scenario: 

The return of hope of a Bitcoin ETF getting approved this year has caused crypto markets to rejoice, with Bitcoin, according to data from CryptoCompare, breaking the $6,500 resistance level, surging to an intraday high of $6,558 around 22:00 UTC, and currently (as of 22:20 UTC) trading at $6,542, up 2.7% in the past 24-hour period.

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Bitcoin Veteran Peter Todd: Reducing Bitcoin’s Block Size to 300KB Is a “Dumb Idea”

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Peter Todd is a Bitcoin veteran. Describing himself as an Applied Cryptography Consultant, Peter has been interested in digital money ever since he read Adam Back’s seminal Hashcash paper as a teenager. Having spent a lot of time himself thinking about how to create a digital currency - when the bitcoin paper was released in 2009, Peter realized that the solution had been found.

Formerly a Bitcoin Core developer, Peter has emerged as one of the most prominent voices in the space, regularly providing a more technically-based commentary to the changing winds of the crypto scene.

Short, sharp and to the point, Peter answered a few of my questions about bitcoin, crypto more broadly, and what the future holds for the industry.

Avi Rosten: How did you get into crypto?

Peter Todd: Via the Freenet Project, back in highschool. Like any good civics/democracy minded high schooler would be, I believed in freedom of speech and Freenet was an obvious way to promote that.

AR: What are some of the developments in the crypto space in the past couple of years that you find most interesting?

PT: Lightning is probably the biggest one. Monero and Zcash second, although remember that "interesting" doesn't necessarily mean "good".

AR: What do you think about recent talk by some Bitcoin Core developers around reducing Bitcoin's block size?

PT:  Some? I think you mean basically just one, Luke. I think it's a dumb idea that's a mere tweak at high cost.

(Peter explained a little more expansively in this interview for the WhatBitcoinDid Podcast why he doesn’t like small block sizes: “I think his technical arguments for that are good, but I think he doesn’t understand the social side of that, which essentially makes it impossible.")

AR: When the bitcoin block reward eventually goes to 0, will mining fees act as enough of an incentive?

PT: Maybe? Maybe not? It'd certainly have been less risky to have some small perpetual inflation, or at least a Monero-like "tail emission"

AR: What do you think of the Lightning network? Will it enable bitcoin to become a widely-used medium of exchange?

PT: How widely used is widely used? Bitcoin is already a fairly widely-used medium of exchange amongst use-cases that need it - lots of services and people at risk of censorship use it, from Patreon alternatives to file hosting sites.

If you're talking about replacing credit cards and the like, it'll probably never happen.

AR: Do you think Bitcoin should incorporate some privacy features or do you think it would make Bitcoin less useful as financial regulators might then treat it as a privacy coin e.g. Japan's FSA's order to exchanges not to deal with privacy coins?

PT: From a purely technical perspective most of what people think of as "privacy features" are risky to implement, with a high chance of a bug leading to the destruction of the entire system. Monero has already had one inflation bug, and Zcash has had two (including the one caught just prior to initial release).

On the other hand, Bitcoin already has many onchain privacy features, ranging  from the UTXO model to various technical things that make Lightning possible. And on the second layer, having at least some level of privacy isn't just a feature, it's mandatory: without decent privacy you can't get scaling, as to scale you have to make transaction data less widely distributed.

AR: What do you think of the two most recent implementations of the MimbleWimble protocol (Beam and Grin)? If the community decided that Bitcoin needed to have these privacy features, what do you think would be the best way to implement them?

PT: I just don't see that happening for another 5-10 years. These protocols are just too new to trust for something as valuable as the entire Bitcoin system. Better to adopt them as additional layers, as Liquid has done.

AR: If you wanted to work with smart contracts, which of the existing platforms would you use? Ethereum, EOS, TRON, Rootstock (RSK) ...?

PT: They're all bad. Their idea of smart contracts doesn't make much sense for most applications. Lightning is currently the best example of a smart contract system in production, and the on-chain scripts it uses are trivial.

There's very little reason to have complex on-chain smart contract schemes.

AR: What’s your biggest criticism of Ethereum?

PT: See the previous question.

It's just not a model that makes much sense.

AR: How do you think crypto news and media could improve?

I'd say get more competent journalists and give them more time and resources to write articles. But realistically, where's the money to do that going to come from?