The U.S. Securities and Exchange Commission on Friday denied a request to list what would have been the first U.S. exchange-traded fund built to track bitcoin and Bitcoin briefly plunged below $1000, but was last seen near $1,150. Investors Cameron and Tyler Winklevoss have been trying for more than three years to convince the SEC to let it bring the Bitcoin ETF to market.
“Based on the record before it, the Commission believes that the significant markets for bitcoin are unregulated,” the SEC said in a statement posted online. “The Commission notes that bitcoin is still in the relatively early stages of its development and that, over time, regulated bitcoin-related markets of significant size may develop.”
The ETF is more or less a common stock fund pegged to the price of Bitcoin, allowing investors to purchase Bitcoin without the work of establishing a personal wallet. (In concrete terms, the ETFs investors will be buying shares whose price will always be the same as the the price of a single bitcoin, similar to an equivalent investment in gold or cattle.) Without a wallet, investors still won’t be able to spend Bitcoin, but they can buy and sell it at market price, adding more liquidity to the Bitcoin system overall.
From the rejection of the filing:
Several commenters note that the majority of bitcoin trading occurs on exchanges outside the United States. One commenter claims that most daily trading volume is conducted on poorly capitalized, unregulated exchanges located outside the United States and that these non-U.S. exchanges and their practices significantly influence the price discovery process. Another commenter states that the biggest and most-influential bitcoin exchange is located outside U.S. jurisdiction.
One commenter states that, since 2013, the price of bitcoin has been defined mostly by
the major Chinese exchanges, whose volumes dwarf those of exchanges outside China. According to the commenter, those exchanges are not regulated or audited, and are suspected of engaging in unethical practices like front-running, wash trades, and trading with insufficient funds. The commenter interprets pricing data from these Chinese exchanges to mean that the price of bitcoin is defined entirely by speculation, without any ties to fundamentals.
Another commenter also observes that Chinese markets drive much of the volume in the bitcoin markets and that the bitcoin/Chinese Yuan (BTC/CNY) quote is apt to trade at a significant premium to the bitcoin/U.S. dollar (BTC/USD) quote. The commenter points out that large arbitrage opportunities would not exist for long in efficient markets, but they do persist in bitcoin markets. One commenter claims that a sizeable number of traders and owners of bitcoin do not desire to trade in a well-regulated environment for reasons including tax evasion, evading capital controls, and money laundering. This commenter also states that U.S. exchanges do not offer products such as fee-free trading, margin trading, or options, which drive traffic to the top non U.S. exchanges. The commenter claims that, because trade is now sparse on regulated U.S. exchanges including Gemini, arbitrage will not occur efficiently or proportionally to mitigate