Today the American regulator the SEC (Securities and Exchange Commission) rejected the Bitcoin ETF (Exchange-Traded Fund) proposed by the Winklevoss twins, the American entrepreneurs who sued the founder of Facebook Mark Zuckerberg for stealing their idea for a social network.
An exchange-traded fund is a security that tracks bonds, commodities or other assets. An ETF is made available like a stock on an exchange. Such funds own the tracked assets, and offer investors ownership of the assets through shares. Investors therefore indirectly own the assets by means of owning shares in the fund.
In apparent prior anticipation of an approval, the market price of Bitcoin fluctuated by over 15% in a matter of minutes on some exchanges, before relatively steadying in the immediate run-up to the announcement. Since the SEC published its decision the price has decreased by around 20% at the time of publication of this article.
The approval of the Winklevoss Bitcoin Trust ETF (NASDAQ:COIN) was thought unlikely by some analysts due to a range of factors including for example potential problems that might be caused by the current scaling crisis in Bitcoin. Others thought it likely that the SEC would approve the proposal as part of the ongoing evolution of regulation. Attorney and Adjunct Professor of Law Philip C Chronakis submitted a comment to the SEC including the following remark:
“Approval of the proposed rule and the underlying COIN ETF, will put the SEC in the ideal position to oversee Bitcoin’s development as an investment asset – and provide fair, broad-based investment opportunities for not only the connected (or technologically savvy) few, but to all Americans who deserve the same chance to benefit from this technological breakthrough and financial opportunity…”
Today the SEC made a negative decision for the ETF, apparently based on fears of market manipulation and on the fact that regulation in the space is still immature. From the official SEC order:
“The Commission is disapproving this proposed rule change because it does not find the proposal to be consistent with Section 6(b)(5) of the Exchange Act, which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest. The Commission believes that, in order to meet this standard, an exchange that lists and trades shares of commodity-trust exchange-traded products (“ETPs”) must, in addition to other applicable requirements, satisfy two requirements that are dispositive in this matter. First, the exchange must have surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated.”