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SEC Rejects Winklevoss Twins' Proposed Bitcoin ETF
Capital Markets, FinTech
The Securities and Exchange Commission announced on Thursday that it has rejected a proposal by Tyler and Cameron Winklevoss to create the first-ever Bitcoin ETF.
This was the second attempt by the Winklevoss twins – founders of crypto exchange Gemini – to gain SEC approval for a Bitcoin ETF. After their application for the “Winklevoss Bitcoin Trust” was rejected last year, they submitted a proposed rule change in June – which would allow the BATS BZX Exchange to list and trade the Winklevoss Bitcoin Trust’s ETF – but it was turned down by a 3-1 vote.
According to its ruling, the SEC rejected the Winklevoss twins’ assertion that the Bitcoin markets are “uniquely resistant to manipulation.” However, it also noted that its ruling “does not rest on an evaluation of whether bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment.”
Rather, the Commission is disapproving this proposed rule change because, as discussed in detail below, 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 Section 6(b)(5), in particular the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices.
The agency did indicate that a regulated Bitcoin market could open the door for a Bitcoin ETF in the future.
Over time,regulated bitcoin-related markets may continue to grow and develop. For example, existing or newly created bitcoin futures markets may achieve significant size, and an ETP listing exchange may be able to demonstrate in a proposed rule change that it will be able to address the risk of fraud and manipulation by sharing surveillance information with a regulated market of significant size related to bitcoin, as well as, where appropriate, with the spot markets underlying relevant bitcoin derivatives. Should these circumstances develop, or conditions otherwise change in a manner that affects the Exchange Act analysis, the Commission would then have the opportunity to consider whether a bitcoin ETP would be consistent with the requirements of the Exchange Act.