SEC rejects Winklevoss bitcoin exchange-traded fund

July 27, 2018
Chris Wheal

The top financial regulator in the US has rejected an application for the registration of a bitcoin exchange-traded fund (ETF) by the Winklevoss twins.

Cameron and Tyler Winklevoss: the twins’ bitcoin-based ETF has been rejected by the SEC

The ruling by the Securities and Exchange Commission (SEC) came after an initial proposed rule change that would allow the listing of the bitcoin ETF was denied in February. The SEC had then allowed a review of its decision, but on Thursday upheld its original decision.

Bats petition

Bats Exchange, which made the petition to allow Cameron and Tyler Winklevoss’s Bitcoin Trust ETF to be listed on its exchange, was denied the application to “protect investors and the public interest” because the SEC believes securities based on cryptocurrencies are open to “fraudulent and manipulative acts and practices”.

In its statement from the original ruling in February the SEC said: “When the spot market is unregulated there must be significant, regulated derivatives markets related to the underlying asset with which the Exchange can enter into a surveillance-sharing agreement.”

Following the review process – petitioned by Bats after the February ruling – the regulator, on Thursday, voted down the application by 3 to 1.

Bats had argued that the geographically diverse and 24-hour, seven-day-a-week trading in digital currencies made it difficult and prohibitively expensive to attempt to manipulate the price of bitcoin and, therefore, the market was less susceptible to manipulation than other capital markets.

Rejection upheld

In response, the SEC said in its statement on Thursday: “The Commission is disapproving this proposed rule change because Bats has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements … that its rules be designed to prevent fraudulent and manipulative acts and practices.”

While several SEC board members have commented in the past months that they did not consider bitcoin to be a security, the regulator emphasised that its disapproval of the ETF did not rest on whether or not bitcoin should be seen as an investment.

The price most cryptocurrencies fell following the SEC’s decision, with bitcoin down nearly 4% in early European trade. A full price round-up will be published at 11am.

ETF application pipeline

The SEC has yet to approve a cryptocurrency-based ETF and the application are continuing to arrive at its headquarters in Washington.

The Commission said earlier this week that it was delaying making a decision on five other bitcoin-based ETFs filed by ETF-provider Direxion.

Also this week, Bitwise Asset Management, which already provides cryptocurrency index managed funds, filed for registration to offer a digital currency index ETF to be called the Bitwise HOLD 10 Cryptocurrency Index EFT.

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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