The Securities and Exchange Commission sees the bitcoin market as threatened with manipulation, if it isn’t already. The repercussions of their view could affect cryptocurrencies for years to come if the door is closed on billions of institutional dollars piling into crypto.

For a second time, the SEC shot down a bid by the Bats BZX Exchange and the Winkelvi-backed Gemini Exchange to launch a bitcoin-based ETF, which was first submitted to the securities regulators a couple of years ago. The proposed ETF was one of several that have been trying to get the blessing of the SEC.

While headlines focused on the Winklevoss brothers getting rejected by the SEC (CNBC: “Winklevoss twins bitcoin ETF rejected by SEC”; CoinDesk: “Winklevoss Brothers Bitcoin ETF Rejected By SEC for Second Time”), the bigger story is that the SEC questions the bitcoin trading market.

In a 92-page response to the Bats BZX and Gemini, the SEC laid out its case for why the two exchanges could neither “prevent fraudulent and manipulative acts and practices” nor “protect investors and the public interest” when it came to Bitcoin.

(Read more: Why the SEC should reject a Bitcoin ETF)

To be sure, the SEC said, “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” [Emphasis ours]. And, some of the SEC’s response focused on the specifications of the proposed ETF itself and the market share of Gemini relative to other U.S.-based and global exchanges (spoiler alert: it’s small). The SEC also insisted that it didn’t hold Bats BZX or Gemini to a standard requiring them to show that bitcoin “cannot be manipulated.”

However, what the commission had to say about the nature of bitcoin markets should have effectively dashed any hope for a bitcoin ETF any time soon.

For one, size really does matter to the SEC, namely the size of bitcoin derivatives markets (such as, say, those futures regulated elsewhere by the Commodity Futures Trading Commission). Right now, the SEC doesn’t think any of them are big enough to take on the threat of manipulation.

The commission said that BZX couldn’t demonstrate that “bitcoin and bitcoin markets are inherently resistant to manipulation.” The big strikeout for the ETF came with its inability to show that there are “surveillance-sharing agreements with significant, regulated markets,” because “bitcoin-related markets… are either not significant, not regulated, or both.”

The SEC meticulously tackled many of the comments it received, first by summarizing them—including those from Delta Strategy Group and SolidX—and then detailing exactly why it wasn’t buying what they were selling.

BZX said that arbitrage could counter the effects of out-of-whack prices on potentially manipulated exchanges while others argued that it would be too expensive to manipulate bitcoin prices on multiple exchanges. The SEC saw this as a contradiction:

“If, in fact, market participants must disperse their capital across multiple trading venues to engage in effective arbitrage, then a market participant may be able to manipulate trading on a single trading venue by concentrating its capital and trading activity there.”

While the SEC said it couldn’t conclude “whether bitcoin spot markets are subject to spoofing or other deceptive quoting practices,” it pointed out that “TeraExchange (a market for swaps on bitcoin) arranged for participants to make manipulative “wash” transactions.”

The SEC also slammed the argument that bitcoin can’t be subject to insider trading:

“[T]here may be material nonpublic information related to: the actions of regulators with respect to bitcoin; order flow, such as plans of market participants to significantly increase or decrease their holdings in bitcoin; new sources of demand, such as new ETPs that would hold bitcoin; or the decision of a bitcoin-based ETP, a bitcoin trading venue, or a bitcoin wallet service provider with respect to how it would respond to a “fork” in the blockchain, which would create two different, non-interchangeable types of bitcoin.”

Tether also made a cameo appearance in the SEC’s response. It appears the commission is concerned with it and took very seriously last month’s paper from professors John Griffin and Amin Shams of the University of Texas:

“Additionally, 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.’ Through statistical analysis of the blockchains of bitcoin and Tether, the authors conclude that entities associated with a specific cryptocurrency trading venue—which the authors link to Tether’s founders—‘use Tether to purchase bitcoin when prices are falling’; that ‘[s]uch price supporting activities are successful, as Bitcoin prices rise after the period of intervention,’ with ‘substantial aggregate price effects’ across bitcoin trading platforms; and that this activity ‘occurs more aggressively right below salient round-number price thresholds where the price support might be most effective.’ The paper finds that the periods of strongest Tether flows are ‘associated with 50% of Bitcoin compounded return’ from March 1, 2017, to March 31, 2018. Overall, the authors conclude that their findings ‘provide substantial support for the view that price manipulation may be behind substantial distortive effects in cryptocurrencies’ and ‘suggest that external capital market surveillance and monitoring may be necessary to obtain a market that is truly free.’”

Interestingly, the SEC noted its take on approving Bitcoin-related products is substantially different than the CFTC’s:

“The Commission is also mindful that the primarily institutional markets that the CFTC supervises are materially different from the securities markets in which many retail investors participate directly. The CFTC acknowledges that ‘[m]ost participants in the futures markets are commercial or institutional commodities producers or consumers’ and ‘[t]rading commodity futures and options is a volatile, complex and risky venture that is rarely suitable for individual investors or ‘retail customers.’”

Yet the SEC’s decision has consequences for institutional investors. According to a study done by Greenwich Associates last year, 15 percent of institutional assets are in ETFs. “Pension funds, insurers and investment funds are most likely to use ETFs for liquidity management, and sometimes to access selected exposures,” noted a study done by EY in 2017.

Public pensions—those promised to government employees, teachers, firefighters, cops, and the like—have aggressively assumed nearly 8 percent average annual returns for well over two decades (the current average is 7.6 percent). Higher rates of return make fund assets look more likely to pay for future liabilities (pension payments). It therefore makes governments look more solvent by shrinking the pension’s deficit on the books.

Interest rates on near risk-free government bonds fell to record lows a couple of years ago and are still relatively small now. The number of pension recipients continues to grow with an aging population. Funds have to pay them somehow and can do so with more lucrative investments. Lucky for them, stocks have done quite well over the past few years; the 12-month return on the S&P 500 was 14 percent at the end of July 2018 but for a spate at the end of 2015, 1-year returns were single-digit or even slightly negative.

Putting money outright in crypto is outside the realm of what’s permitted to pension funds but an ETF could—depending on an ETF’s structure and a fund’s policy guidelines—make it tempting for funds looking to cover liabilities during troubled times without begging the government to raise taxes to bail it out.

And as the SEC repeated in its response four times, its rules are meant “to protect investors and the public interest.”