The SEC has rejected an appeal to launch the Winklevoss Bitcoin Trust as an ETF. Although it was argued that the cryptocurrency market is not very vulnerable to manipulation, the SEC believes that it is.

SEC Rejects Appeal of Earlier Ruling Against Winklevoss Brothers’ Proposed ETF

On June 30, 2016, Bats BZX Exchange filed an application with the U.S. Securities and Exchange Commission for a rule change that would have permitted it to list and trade shares of the Winklevoss Bitcoin Trust. Although the SEC rejected the application, Bats BZX Exchange filed an appeal that proposed a rule change that would allow the exchange to go ahead with its plans.

In its appeal, Bats BZX Exchange argued that the Bitcoin market was not very vulnerable to manipulation and also questioned the assumption that there would not be built-in investor protections.

On Thursday, the SEC voted down the appeal by a vote of 3 to 1. It reasoned that the exchange had not done an adequate job of demonstrating that the highly volatile Bitcoin market could not be manipulated and cited the very real cases of fraud that includes investment scams in the cryptocurrency market.

The SEC also acknowledged that it had little control over offshore markets, where it believes much of the manipulation occurs. This may be a rational assumption considering that many “whales” in the cryptocurrency market — most of whom do not live in the United States and may hold large bags in popular cryptocurrencies other than Bitcoin — could theoretically impact the market by dumping their holdings. Roughly 95% of exchange activity happens in exchanges that are based outside of the U.S.

More Applications Still Active

A joint venture between VanEck and SolidX known as the VanEck SolidX Bitcoin Trust still has an active application for an ETF. The SEC is expected to issue a ruling on the application by August 16, assuming that it follows the rules outlined by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Bitwise has also filed for a multi-cryptocurrency ETF recently. This ETF would follow the cryptocurrencies tracked by Bitwise’s HOLD 10 Index.

However, given the rejection of the Winklevoss Bitcoin Trust, it may be longer before an ETF application from any organization is actually approved. The SEC has already delayed deliberations on NYSE Arca’s five proposed ETFs.

Bitcoin Tumbles Despite Effort From Influencers

Bitcoin prices promptly tumbled as low as $7,880 from its two-month high at about $8,300 on the news of the Winklevoss Bitcoin Trust’s rejected appeal despite the opinions of influencers such as Charlie Shrem that the most recent SEC rejection was actually old news. The news of the original rejection broke on March 10, 2017 and many cryptocurrency insiders may not have known about the ongoing appeal. This opinion turned out to be false, as an official SEC document addressing the Bats BZX Exchange appeal and resulting decision shows.

In fact, the SEC did not deny that Bitcoin does have value as an investment. It simply cited its primary role as a protector of investors in this ruling. In true bureaucratic style, it may simply hasn’t made much progress on studying cryptocurrency trading worldwide since issuing a letter stating that “significant investor protection issues … need to be examined” before an ETF can be approved.