SEC Rejects Winklevoss Bitcoin ETF Proposal

SEC Rejects Winklevoss Bitcoin ETF Proposal

This Thursday 26 July could be seen as a major setback for the outlook for ETFs.

The Winklevoss ETF could have failed not because it is a Bitcoin ETF, but because of the way in which it was constructed. In a 92 page description, the US's primary regulator of such marketplaces rejected a rule modification at the behest of Bats BZX Exchange. The proposed change would have allowed bitcoin tethered investment products.

However, the Winklevoss twins are not the only ones who have applied to the SEC to launch an ETF, there are a number of different applications from a range of different companies including the CBOE, the people behind one of the first Bitcoin futures contracts.

Maybe a positive indication for enthusiasts is the way the SEC stipulated never to have prejudice always against cryptocurrencies. More institutional participation would ameliorate numerous Commission's concerns with the Bitcoin market that underlie its disapproval order. However it proved to be of no avail: According to a press release which came out on Thursday, the SEC stated it did not agree with the Winklevoss' twins belief that cryptocurrency markets are "uniquely resistant to manipulation", and they persisted with their concerns regarding fraud and investor protection, stating that Bitcoin "has not met its burden under the Exchange Act".

In the 92 page document detailing how the decision was reached, the SEC says "The Commission thus can not, on the record before it, conclude that bitcoin markets are uniquely resistant to manipulation".

ETFs are considered, among cryptosphere cheerleaders for mainstream adoption, something like the holy grail of financial investment products. Exchange traded funds could be outlined on legacy boards like the New York Stock Exchange in quite similar way as conventional stocks.

That diversity is believed to be less risky, let alone save investors - less crypto experts - the hassle of choosing which to buy. And, especially in regards to decentralized digital assets, the complication of keeping keys, a wallet, and determining custody or storage is all looked after. Retail investors are very familiar with ETFs.

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The Commission using certain problems that exist within the bitcoin market to reject the application, knowing full well that approving the application would go a long way to remedying the issues is merely creating a never-ending cycle where no progress can ever really be made.

The regulator also says BZX must show that "it can enter into a surveillance-sharing agreement with a regulated, bitcoin-related market of significant size" but hasn't been able to prove that markets for bitcoin and its derivatives are such markets.

The $8,000 level has proven to be a comfortable spot for bitcoin as of late, which has shot up almost $2,400 over the past few weeks.

Peirce argued that shares of the Winklevoss Bitcoin Trust would trade under BZX Rule 14.11 (e)(4), which governs the listing and trading of Commodity-Based Trust Shares.

It also led to SEC commissioner, Hester Peirce, tweeting angrily about the decision which was passed by 3 to 1, and linking the curt tweet to her public statement of dissent on the SEC website. The Commission's action today deprives investors of this choice.

"The disapproval order demonstrates a skeptical view of innovation, which may have an adverse effect on investor protection, efficiency, competition, and capital formation well beyond this particular product", Peirce said.

The Securities and Exchange Commission denied the request in a 3-1 vote, upholding the rejection handed down a year ago.

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