In a three-to-one vote on July 26, 2018, the SEC declined an appeal by the Winklevoss Bitcoin Trust to launch the much-awaited Bitcoin ETF.

SEC’s ETF Refusal

Among other things in the 92 page statement, the SEC said that the Trust was declined because “[the] exchange [must] be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest.”

The commission argues that the Winklevoss Bitcoin Trust must comply with this section by offering some means of identifying fraud and market manipulation. The Commission further stated that previously approved commodity-trust ETP entered into a surveillance-sharing agreement with a regulated bitcoin-related market of significant size.

For those reasons, the SEC declined the appeal by stating:

“Therefore, [Winklevoss Bitcoin Trust] has not met its burden to demonstrate that the proposed rule change is consistent with Exchange Act Section 6(b)(5), and, accordingly, the Commission is disapproving the proposed rule change.”

Disagreement with the SEC Ruling

In the 3-1 ruling, the lone dissenter was the Trump-appointed SEC Commissioner Hester M. Pierce who challenged the other commissioners by saying the proposed rule change satisfies the requirements of [the] Exchange Act.”

The commissioner also opined:

“I am concerned that the Commission’s approach undermines investor protection by precluding greater institutionalization of the bitcoin market.” and writes further: “If we were to approve the ETP at issue here, investors could choose whether to buy it or avoid it. The Commission’s action today deprives investors of this choice.”

Other institutional investors agree with the Commissioner’s sentiment. During the comment period for the filing, the SEC reportedly received a total of 66 comments through the first proposed rule change announcement. In response to the review order and the appeal, the commission received six responses as of July 13, 2018. Five out of the six commenters all strongly supported the Winklevoss Bitcoin Trust filing and opposed the denial by the SEC.

The bright and unifying theme among these institutional investors is that the SEC seems to be applying different standards to the Winklevoss Bitcoin Trust as opposed to other approved funds. For example, Eric W. Noll with Convergex argues:

“The standard applied to this Filing differs from past filings [with the SEC]. The Commission seems to have applied different standards for the approval of the Bitcoin ETF than what has previously been applied to prior ETF. This is especially unique in that the Commodities and Futures Trading Commission (“CFTC”) has already determined that bitcoin qualified for treatment as an exempt commodity.”

Concerning the protection of investors from market manipulation, James A. Overdahl of the Delta Strategy Group states:

“Manipulation of the global bitcoin price would be prohibitively costly to the would-be manipulator, making such an occurrence unlikely.”

Concerning the SEC unreasonable standards on this filing, Mr. Overdahl writes:

“The SEC staff appears to be applying a standard of “cannot be manipulated” to the bitcoin market as opposed to a standard of “not readily susceptible to manipulation” that has been applied to other [approved] traded commodities.”

All eyes on next ruling

On September 21, the SEC will announce the decision for the Direxion ETF. The anonymous sources reported that the SEC would also be announcing regulation for cryptocurrencies. Also, the CBOE ETF has their decision pending as well.

Here is a statement from Cameron Winklevoss, co-founder, and President of Gemini, regarding this matter:

“Despite today’s ruling, we look forward to continuing to work with the SEC and remain deeply committed to bringing a regulated bitcoin ETF to market and building the future of money.”

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