Anticipation of the first Bitcoin exchange traded fund (ETF) being approved has helped induce a Bitcoin rally that saw prices climb from USD 6,200 to USD 8,500. The most hyped Bitcoin ETF is one from VanEck and SolidX, but there are other ETFs that have been proposed to the Securities and Exchange Commission (SEC) including the Winklevoss Bitcoin Trust. In a 92-page document dated 26 July 2018, the SEC thoroughly analyzes and rejects the Winklevoss Bitcoin Trust, which might be the reason behind Bitcoin’s drop to USD 7,900 today.
The VanEck SolidX Bitcoin ETF is being hyped up because it uses actual Bitcoins, so if it is approved then it would allow investors to buy Bitcoin on any of the major stock trading platforms. The Winklevoss Bitcoin Trust uses actual Bitcoins as well, and now it has been rejected, raising fears that the SEC is not ready to approve a Bitcoin ETF even if it uses actual Bitcoins. In the past, ETFs that depended on Bitcoin Futures have been rejected for being too risky, and it was thought an ETF which uses actual Bitcoins might be accepted.
The main reason the SEC rejected the Winklevoss Bitcoin Trust is that it says the Bitcoin market is susceptible to manipulation. The SEC can approve a commodity-based ETF even if its market is small enough to be manipulated, but it requires a surveillance sharing agreement between the listing exchange and a major exchange. The exchange looking to list the Winklevoss Bitcoin Trust, Bats BZX exchange, entered into a surveillance sharing agreement with the Gemini Bitcoin exchange, but Gemini is tiny compared to the big crypto exchanges. The SEC says it wants a surveillance sharing agreement with a big Bitcoin exchange to ensure no manipulation, which is something the Winklevoss Bitcoin Trust has no control of.
Clearly, the SEC can use similar reasoning to reject the VanEck SolidX Bitcoin ETF. The SEC goes further to say that most Bitcoin trading is done overseas and not properly regulated. The SEC says that if markets become properly regulated it may approve a Bitcoin ETF, but is clear that in the current situation it would not approve a Bitcoin ETF without surveillance sharing agreements with major exchanges. It is unlikely that major Bitcoin exchanges would consider handing over all of their information to the SEC, especially since none of the major exchanges are in the United States.
While this SEC decision is aimed at the Winklevoss Bitcoin Trust, it is essentially a 92-page research paper explicitly and coherently explaining how the SEC would never allow Bitcoin to be traded on the stock market under current conditions.
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