By Jeff John Roberts
July 26, 2018

The Securities and Exchange Commission rejected on Thursday a bid by the Winklevoss twins to create an exchange traded product for Bitcoin, citing the potential for market manipulation and a lack of liquidity.

The SEC’s 3-1 decision came after the Winklevoss twins asked the agency to revisit its earlier rejection of the ETF in March of 2017, and was based in part on comments from the public. Unlike the earlier ruling, which caused the price of Bitcoin to plummet, the decision appears to have had only a small effect on the market.

In the hours after the decision, the price of Bitcoin fell to just under $8,000, representing around a 3% fall. The drop, while noticeable, is a blip in the context of the digital currency’s general volatility.

A review of the 92-page decision suggests the agency was skeptical of the specific arrangement proposed by the Winkelvoss twins, and not because of an underlying hostility to Bitcoin in general.

“Although the Commission is disapproving this proposed rule change, 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,” the agency stated.

The ruling expressed skepticism over whether the Winkelvoss’s proposal to source the Bitcoin for the ETF from their own exchange would provide an adequate source of liquidity. It noted the exchange, known as Gemini, was thinly traded compared to larger U.S. and global exchanges.

The SEC also cited recent academic papers that suggested the price of Bitcoin can be manipulated, and referred repeatedly to public comments that described a high volume of Bitcoin trading activity in China.

The decision is also notable for a vociferous dissent by Commissioner Hester Peirce, who wrote that the ruling “dampens innovation” and that the SEC had prevented investors from choosing for themselves whether to invest. Peirce also expressed her thoughts on Twitter:

Those familiar with Bitcoin widely believe that the SEC’s approval of an ETF will increase liquidity, and cause prices to rise. As such, Thursday’s ruling is a set back for Bitcoin, but one that appears to leave the door open for the approval of Bitcoin exchange-traded products in the future.

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