SEC Rejects Winklevoss Bitcoin ETF Proposal

Roman Schwartz
July 27, 2018

The price of Bitcoin on July 27th, 2018.

The SEC originally rejected an application for the "Winklevoss Bitcoin Trust" past year. The drop also coincided with a signal of lost momentum that some traders consider to be bearish, the first such indication since the token's historic surge in December.

The SEC also cited recent academic papers that suggested the price of Bitcoin can be manipulated, and referred repeatedly to public comments that described a high volume of Bitcoin trading activity in China. Bitcoin is down about 43 percent this year, hitting a low on June 29.

Its proposal was consistent with Exchange Act Section 6 (b)(5) on the grounds that the "geographically diverse and continuous nature of bitcoin trading makes it hard and prohibitively costly to manipulate the price of bitcoin" and that, therefore, the Bitcoin market "generally is less susceptible to manipulation than the equity, fixed income, and commodity futures markets" and because "novel systems intrinsic to this new market provide unique additional protections that are unavailable in traditional commodity markets".

The application was reportedly reviewed by the SEC for the second time after Gemini co-founders Cameron and Tyler Winklevoss appealed.

Following the announcement, SEC Commissioner Hester Peirce posted a dissent to the decision on the Security & Exchange Commission's website.

This would be the second time the Winklevoss twins fail in their attempt to obtain approval from government agencies. The first time was in 2017
This would be the second time the Winklevoss twins fail in their attempt to obtain approval from government agencies. The first time was in 2017

Those familiar with Bitcoin widely believe that the SEC's approval of an ETF will increase liquidity, and cause prices to rise. The SEC voted down the proposal three to one.

The move comes more than a year after the SEC turned down a rule change request from the Bats BZX Exchange that would have paved the way for the bitcoin-tied investment vehicle.

The agency stressed that its assessment was not about the digital currency but that its decision was made out of concern to prevent fraud and protect investors.

She added that "more institutional participation would ameliorate numerous Commission's concerns with the bitcoin market that underlie its disapproval order".

Yet the SEC pushed back against this contention within the context of the Exchange Act's requirements, highlighting the lack of surveillance-sharing agreements with exchanges where the spot price of bitcoin is determined.

"Although the Commission is disapproving this proposed rule change, the Commission emphasises that its disapproval does not rest on an evaluation of whether bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment", the SEC said in its report. Therefore, the bitcoin market "generally is less susceptible to manipulation than the equity, fixed income, and commodity futures markets".

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