The Securities and Exchange Commission rejected a proposal by Cameron and Tyler Winklevoss, founders of crypto exchange Gemini, for the first-ever cryptocurrency ETF.
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Last year, the SEC disapproved an application for the “Winklevoss Bitcoin Trust” but in June the group submitted a proposed rule change. Among other arguments, the agency said in a release Thursday that it did not support the Winklevoss’s argument that bitcoin markets, including the Gemini Exchange, are “uniquely resistant to manipulation.” It also highlighted issues of fraud and investor protection.
The U.S. financial watchdog has yet to approve a cryptocurrency-based ETF. It published a letter in January pointing to “significant investor protection issues that need to be examined” before sponsors can offer these funds to retail investors.
The SEC emphasized that the disapproval does not rest on an evaluation of whether bitcoin or blockchain technology has value as an innovation or investment.
But the agency indicated that its mission is designed to prevent fraudulent or manipulative acts or practices and to protect investors, and that they were concerned about fraud and manipulation of bitcoin, particularly since this is done in a largely unregulated offshore market.
The SEC noted that more than three-fourths of the volume in bitcoin occurs outside the United States, and that 95 percent of the volume occurred on non-U.S. exchanges.
The bid-ask spreads varied widely across exchanges, the SEC said. The volume in bitcoin futures markets are small: 20 percent the volume of platinum, and 2.5 percent that of silver.
As for assertions that bitcoin is uniquely resistant to manipulations, the SEC “finds that the record before the Commission does not support such a conclusion.”
There is another bitcoin ETF application that is still active — the VanEck SolidX Bitcoin Trust. The SEC had no comment about that application.
The vote was 3-1.
Bitcoin soared two a two-month high above $8,300 this week, partially because of rumors that the SEC could approve a similar trading vehicle as early as August. While they need to address one proposal by August 16, based on the agency’s denial of other ETFs, it could be multiple months before a meaningful announcement.
VanEck and SolidX filed a joint application for a bitcoin ETF, which was published for comment on July 2. According to Dodd Frank rules, the agency needs to take action within 45 days of the publication of that proposal, which falls on August 16.
This week, the agency SEC delayed deliberations on five other bitcoin ETFs filed by NYSE Arca, Inc. Asset manager Bitwise joined the list of hopefuls on Tuesday, and filed for an ETF that would track a basket of cryptocurrencies.