Winklevoss Brothers Bitcoin ETF Rejected By SEC for Second Time

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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 decision has had an impact on the price of bitcoin, which fell from almost $8,300 following the decision to a low of $7,973.81, according to CoinDesk's Bitcoin Price Index (BPI).

The SEC rejected an application for the "Winklevoss Bitcoin Trust" past year, but the application was resubmitted in June, which included a proposed rule change. The drop also coincided with a signal of lost momentum that some traders consider to be bearish, the first such indication since the token's historic surge in December.

After the first rejection, the new application stated, "The geographically diverse and continuous nature of bitcoin trading makes it hard and prohibitively costly to manipulate the price of bitcoin".

SEC Commissioner Hester M. Peirce later followed up with a statement on her own, saying that she is "concerned that the Commission's approach undermines investor protection by precluding greater institutionalization of the bitcoin market".

By suggesting that bitcoin, as a novel financial product based on a novel technology that is traded on a non-traditional market, can not be the basis of an ETP, the Commission signals an aversion to innovation that may convince entrepreneurs that they should take their ingenuity to other sectors of our economy, or to foreign markets, where their talents will be welcomed with more enthusiasm.

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Bitcoin turned negative after the SEC's ruling, and last traded down 2.9 percent.

The SEC notes that several exchanges have been hacked and that academic papers "suggest that the price of bitcoin can be, and has been, manipulated through activity on bitcoin trading venues".

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

Therefore, it's not terribly surprising that the Commission rejected BZX's notion that the "geographically diverse and continuous nature of bitcoin trading makes it hard and prohibitively costly to manipulate the price of bitcoin". 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.

In January, the SEC published an open letter explaining that there are "significant investor protection issues that need to be examined" before cryptocurrency ETFs and similar products can be offered to the public.

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.

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