The U.S. Securities and Exchange Commission (SEC) has once again rejected an effort by investors Cameron and Tyler Winklevoss to list a bitcoin ETF.
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. Shortly after, Bats submitted a petition to review that decision, triggering another wave of comments – and expectation – about the agency’s willingness to approve a cryptocurrency exchange-traded product.
Yet the concerns highlighted in that March decision don’t seem to have abated, according to the decision published Thursday by the SEC.
The agency notably highlighted that its decision doesn’t constitute a judgment against cryptocurrencies and blockchain in general, but rather the structure of the proposal that was pitched.
The SEC wrote:
“Although the Commission is disapproving this proposed rule change, the Commission emphasizes 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. Rather, the Commission is disapproving this proposed rule change because, as discussed in detail below, BZX 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 of the Exchange Act Section 6(b)(5), in particular the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices.”
And as before, the SEC left the door open to potentially approving such products in the future, noting that “over time, regulated bitcoin-related markets may continue to grow and develop.”
“For example, existing or newly created bitcoin futures markets may achieve significant size, and an ETP listing exchange may be able to demonstrate in a proposed rule change that it will be able to address the risk of fraud and manipulation by sharing surveillance information with a regulated market of significant size related to bitcoin, as well as, where appropriate, with the spot markets underlying relevant bitcoin derivatives,” the agency continued.
Should that happen, “the Commission would then have the opportunity to consider whether a bitcoin ETP would be consistent with the requirements of the Exchange Act.”
The decision has had an impact on the price of bitcoin, which fell from nearly $8,300 following the decision to a low of $7,973.81, according to CoinDesk’s Bitcoin Price Index (BPI). As of press time, the BPI is showing a price of about $8,004.
Manipulation concerns
Among the significant points raised in the release is the concern that the price of bitcoin is susceptible to manipulation – a point that Bats BZX sought to counter during the review.
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.
“Because adequate surveillance-sharing agreements are not in place—and any current surveillance-sharing agreements are with bitcoin-related markets that are either not significant, not regulated, or both—the Commission concludes that the proposal is inconsistent with Exchange Act Section 6(b)(5),” the agency wrote.
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.
“…the Commission notes that recent academic papers suggest that the price of bitcoin can be, and has been, manipulated through activity on bitcoin trading venues. One recent academic paper examined whether the growth of the circulating supply of Tether (a cryptocurrency that claims to be backed by the U.S. dollar) through new issuances ‘is primarily driven by investor demand, or is supplied to investors as a scheme to profit from pushing cryptocurrency prices up.'”
Regulator Dissent
SEC Commissioner Hester Peirce wrote a dissension to the decision, saying she believes “the proposed rule change satisfies the statutory standard and that we should permit BZX to list and trade this bitcoin-based exchange-traded product (‘ETP’).”
She added that “more institutional participation would ameliorate many of the Commission’s concerns with the bitcoin market that underlie its disapproval order. More generally, the Commission’s interpretation and application of the statutory standard sends a strong signal that innovation is unwelcome in our markets, a signal that may have effects far beyond the fate of bitcoin ETPs.”
Image via Techcrunch Disrupt, by Max Morse for TechCrunch
This story has been updated with additional information.