SEC Rejects Winklevoss Twins Bitcoin ETF

The U.S Securities and Exchange Commission (SEC) has rejected an application by the Winklevoss twins.


The U.S Securities and Exchange Commission (SEC) has rejected an application by the Winklevoss twins Tyler and Cameron which sought approval to offer an exchange-traded fund (ETF) pegged on Bitcoin.

Key takeaways

  • The SEC rejected the Winklevoss Bitcoin ETF
  • Bitcoin (BTC) dipped to ~$7,900 following the news
  • Rejection reasons:
    • Proposal did not meet the Exchange Act requirements
      • Concerns over price manipulation
      • Worries about fraudulent activity
  • SEC commissioner expresses disappointment with the agency’s decision

This is the second such application by the Gemini founders to be rejected by the SEC. The first application, which would have been listed on the CBOE, was thrown out by the US watchdog in February 2017.

At the time, the commission had expressed reservations about the nature of the entire cryptocurrency industry. It felt that the field was largely unregulated.

The second application was made by BATS BZX Exchange which had sought a rule change a bitcoin ETF by the Winklevoss Bitcoin Trust. The SEC’s document showed that the proposal was tossed out by a vote of 3-1.

In a statement issued Thursday, July 26, the regulatory body made it clear that it hadn’t been convinced by assertions to the effect that the crypto markets were now “resistant to manipulation”.

The agency’s statement notes that “the record before the Commission does not support such a conclusion.”

Accordingly, it means that the market is still highly volatile and unregulated; posing concerns that had seen the first application rejected.

The swift move by the commission has dampened optimism in the cryptocurrency community. For some time now, traders and investors have help hope that a positive result from the US regulator would help the market attract institutional investors.

These big money institutions from Wall Street and elsewhere would help stabilize the market and make investing in crypto attractive.

Concerns over manipulation persist

It’s becoming clearer what the SEC is concerned about when it comes to allowing exchange-traded funds (ETFs). The main stumbling block is the issue of manipulation.

Bats BZX Exchange that had sought approval to offer the Winklevoss’s ETF, tied to point out that Bitcoin’s trading is a decentralized activity. It maintained that since Bitcoin traded on several platforms right across the globe, it was practically unfeasible for fraudsters to attempt price manipulation.

However, the Commission has maintained its original stance, pointing to the fact that a large part of Bitcoin’s trading takes place on “unregulated exchanges” that lie out of the United States’ jurisdiction.  In addition, it still feels that the crypto is affected by low liquidity.

BZX had also argued that BTC markets can’t be manipulated due to the fact that trading takes place 24/7 all year round. It also put forth the argument that there was “no single market-close for investors to attempt to manipulate.”

The SEC explains that there was a vulnerability that could be exploited in case a fraudulent character had the incentive to do so. In disagreeing with BZX, the agency added that:

“In the context of the Trust, however, there is a single market and a single market-close event that an investor may have the incentive to manipulate: the Gemini Auction, which the Trust would use to calculate Net asset value (NAV).”

It’s not about crypto’s utility or value.

It has been made clear that the rejection is on the grounds of security concerns. The SEC’s statement emphasizes further that it has nothing to do with its take on whether cryptocurrency or blockchain, its underlying technology.


It says that the decision does not reflect or should it be misconstrued to mean it was questioning whether it (cryptocurrency) had any utility or value as a vehicle for innovation or as an investment tool.

The SEC added:

“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.”

In essence, the agency’s determination is that the Gemini exchange is small and that it can’t provide or guarantee the assurances it promises the investors.

The Commission also indicated that it was “disapproving the proposed rule change because BZX has not met its burden to demonstrate that its proposal is consistent with Exchange Act Section 6(b) (5).”

For this matter, the agency notes that BZX had not established any agreements related to surveillance-sharing with any regulated bitcoin markets or exchanges that could be deemed large enough.

It goes ahead to point out that the proposal didn’t demonstrate that other compliance efforts relating to the Exchange Act Section 6(b)(5) would have been sufficient.

It, therefore, concluded that “Because BZX has failed to carry its burden; the proposed rule change must be disapproved.”

Will there be any Effect on the market?

The SEC’s decision to reject the ETF proposal reinforces the underlying mistrust of crypto markets, especially regarding manipulation and other hack cases. As such, one of the many effects will be to put off any imminent move into cryptocurrency investing by institutional investors.

Commissioner Hester Peirce, however, disagreed with the rest saying that such a move would go against what regulators seek to achieve. But she remains positive about institutional participation.

“More institutional participation would ameliorate many of the Commission’s concerns with the bitcoin market that underlie its disapproval order,” Ms. Peirce wrote on the SEC website.

It also has an immediate effect on the market sentiment that seems to have been buoyed by a likely approval. Although the price of Bitcoin in recent days wasn’t driven by expectation relating to the Winklevoss ETF, BTC took a hit when the news reached the market.

Bitcoin (BTC) traded above $8,200 just before news of the SEC decision hit the market. Unsurprisingly, it immediately took a tumble, falling under $8,000. The top coin remains bullish though and may yet reach prices seen earlier this week.

Also important is that the commission is yet to make a determination on the Van Eck SolidX ETF. Another application by Bitwise Asset Management Inc. also awaits determination by September after SEC postponed making a decision.

Leave A Reply

Your email address will not be published.