Published: Fri, July 27, 2018
Markets | By Josh Butler

Bitcoin [BTC] ETF rejection met with dissent by SEC Commissioner

Bitcoin [BTC] ETF rejection met with dissent by SEC Commissioner

The Securities and Exchange Commission rejected on Thursday a bid by the Winkelvoss twins to create an exchange traded product for Bitcoin, citing the potential for market manipulation and a lack of liquidity.

The SEC originally rejected an application for the "Winklevoss Bitcoin Trust" past year.

Exchange-traded funds (ETFs) for Bitcoin are back in the news again this week. She added that the SEC's analysis focused unnecessarily on the bitcoin market when it should have narrowly addressed BZX's ability to regulate itself.

Pierce also holds that the SEC fails to interpret the statutory standards properly, basing its decision on the underlying Bitcoin 00 spot market rather than the ETP shares of the Winklevoss Bitcoin Trust to be listed on the exchange. Should circumstances arise that make it easier to detect fraud and manipulation, regulators said, the SEC would be open to reviewing the rules.

"More institutional participation would ameliorate numerous Commission's concerns with the bitcoin market that underlie its disapproval order", she said, adding that the ruling "sends a strong signal that innovation is unwelcome in our markets".

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The SEC notably highlighted a recent study which claimed that USDT - the dollar-tied "stablecoin" operated by Tether, which is linked to the cryptocurrency exchange Bitfinex - has been used to support the price of bitcoin during market downturns. This qualifier could indicate that the SEC may be receptive to a future bitcoin ETF if the right conditions are met and its host exchange can provide proof of sufficient market protections.

The Commission emphasizes that its approval does not rest on an evaluation of whether Bitcoin or blockchain more generally has utility or as an innovation or an investment, the agency stated. She argued that the movement of Bitcoin ETPs into the market would foster a sense of institutionalization that would target the problems that the Commission faces with the Bitcoin market.

For comparison, the proposals file by Boston-based ETF provider Direxion Investments at the time of writing have prompted only three comments. "While I contend that the markets are already better connected by active arbitrageurs than the Commission's order suggests, the establishment of an ETP would invite more price arbitrage and thus better connections among markets".

The decline halted Bitcoin's July rally, which had seen the cryptocurrency gain more than 30 per cent after its plunge earlier this year.

Since, it is expected that ETF will be a tool that will attract more institutional investors into the Bitcoin market.

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