The US Securities and Exchange Commission may be setting the requirements for a bitcoin exchange-traded fund too high by taking a merit-based approach to the regulation of the underly market, according to one of its commissioners.

“There are many markets that are not regulated, but we have nevertheless built products on top of them,” said Commissioner Hester Peirce, during a fireside chat hosted by the Bipartisan Policy Center and the Managed Funds Association. “We have to be very careful with that type of reasoning.”

Sharing the Commodity Futures Trading Commission’s experience with bitcoin futures during the fireside chat, Commissioner Brian Quintenz noted that having an underlying market that is free from manipulation is a tall order for any regulator.

The CFTC’s approach was to make sure that the bitcoin spot market was not readily susceptible to manipulation.

“Our jurisdiction over those contracts is that they are not readily susceptible to manipulation,” he said. “It is not ‘being manipulated in any capacity’ because we can all acknowledge that with a certain amount of time and a certain amount of resources that almost anything can be manipulated.”

According to Commissioner Quintenz, a well-engineered settlement index is a necessity to identify any market-manipulation attempts. He cited, but did not name directly, the CME Group’s Bitcoin Reference Rate Index as an example.

The BRR Index uses multiple volume-weighted prices in five-minute increments over the course of an hour from multiple bitcoin-trading platforms to determine the daily settlement price for CME bitcoin-futures contracts.

“So if one participant wanted to manipulate that settlement index, they would have to have the majority of volume on multiple exchanges, in multiple five-minute periods,” he said. “Could they do it? Maybe.. Would we know about it? Immediately.”

Commission Quintenz also noted since the cryptocurrency spot market falls outside of the CFTC’s oversight jurisdiction, he hoped that the platform operators would develop a free-market approach address issues such as conflicts-of-interest, business conduct, insider trading, redemptions, custody, and liquidity.

Any such body likely would be a mutual association of private industry since only Congress can charter self-regulatory organizations through law, he added.

One such body is the Virtual Commodity Association Working Group that cryptocurrency trading-platform operators BitFlyer, Bitstamp, Bittrex, and The Gemini Trust Company formed in September 2018.

“I am encouraged by the progress,” said Commission Quintenz. “I view it as a 400m dash while they view it as a marathon. Hopefully, it might be somewhere in the middle.”