Bitcoin fell after the U.S. Securities and Exchange Commission rejected a request to list an exchange-traded fund run by Tyler and Cameron Winklevoss, showing the regulator remains skeptical that the market for the cryptocurrency is sufficiently free of abuse to bring trading to the masses.
The SEC said Thursday it isn’t convinced that trading of the world’s largest virtual token has adequate surveillance and that Cboe Global Markets Inc., which would have listed the Bitcoin ETF, failed to show that the underlying market was “resistant to manipulation.” The ETF’s value would have been tied to trading on the Winklevoss twins’ Gemini exchange.
The stated reason being the largely unregulated nature of Bitcoin (BTC) markets. The agency said then:
”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.”
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.
Bitcoin had been rising recently in part on speculation that the SEC would sign off on an ETF. The regulator’s decision is a major setback for Bitcoin enthusiasts, because an ETF would have opened up the market to mutual funds and other institutional investors that are restricted from trading the token.
Bitcoin fell by as much as 3.6 percent after the SEC’s announcement to $7,848.46. That’s almost 60 percent below the high of $19,511 reached in December. The SEC said in its filing:
“The record before the commission indicates that a substantial majority of Bitcoin trading occurs on unregulated venues overseas that are relatively new and that, generally, appear to trade only digital assets.”
“Regulated Bitcoin-related markets are in the early stages of their development.”
The Commission continued:
“Rather, the Commission is disapproving this proposed rule change because… 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… in particular the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices.”
EC Commissioner Hester Peirce said that by rejecting a Bitcoin ETF, the regulator might actually undermine investor protections. That’s because doing so would prevent the market from becoming more institutionalized,
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