Monday, December 5, 2022

Bitcoin Price Plummets as SEC Denies Winklevoss Investment Fund

Bitcoin Price Plummets as SEC Denies Winklevoss Investment Fund

The US Securities and Exchanges Commission (SEC) dealt a hammer blow to bitcoin value this afternoon, denying a request to list a bitcoin-based ETF. Significant markets for bitcoin remain too unregulated for comfort, the agency said.

Also read: Government May Use IRS to ‘Take Down’ Bitcoin: Rickards

The bitcoin price, which had ramped up and topped $1365 USD right before the announcement, suddenly plunged to just under $1000 on the news.

Much-Anticipated SEC Announcement

The much-anticipated SEC announcement, which was predicted to send the bitcoin price either soaring or plummeting, came in the afternoon of Friday, March 10. If approved, it could have brought large and institutional investment money into bitcoin for the first time.

At issue is whether the would allow a rule change on the Bats BZX Exchange to allow a listing of the Winklevoss Bitcoin Trust. Brothers Cameron and Tyler Winklevoss have been proposing a bitcoin-based exchange-traded fund aimed at large traditional investors since mid-2013.

The ruling said:

“… the Commission is disapproving this proposed rule change because it does not find the proposal to be consistent with Section 6(b)(5) of the Exchange Act, which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest.”

“The Commission believes that, in order to meet this standard, an exchange that lists and trades shares of commodity-trust exchange-traded products (“ETPs”) must, in addition to other applicable requirements, satisfy two requirements that are dispositive in this matter. First, the exchange must have surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated.”

Without SEC approval, the Winklevoss Bitcoin Trust and other similar proposed ETFs cannot list on any regulated exchange. This means bitcoin investment remains off-limits to ‘serious’ investors, which would include large American pension funds.

Similar Investments Exist Overseas

Similar bitcoin-based investment products already exist on exchanges in other countries, namely XBT Provider’s Bitcoin Tracker One and Bitcoin Tracker Euro, which trades on the Stockholm Nasdaq/OMX.

Swedish mining hardware firm KnC had a majority stake in these products. Asset management company Global Advisors (Jersey) Limited acquired the two trackers after KnC filed for bankruptcy in mid-2016.

However, these products were exchange-traded notes (ETNs) rather than ETFs. Both types of product get their value from an underlying asset and investors can buy and sell both on exchanges. The key difference is that ETF operators actually hold the underlying asset. ETN providers do not — an ETN is more like a bond without the interest payments, a debt note and pays out when it matures at some future date.

Technically then, if you hold a share in an ETF, you own bitcoin. In general, ETFs are more popular and more liquid than ETNs.

Bad News for Bitcoin or Not?

For sure, a massive price drop will dampen the enthusiasm Bitcoin has received lately. Mainstream media and other critics are likely to point to money losses and bitcoin’s historic volatility.

Longtime bitcoiners have mixed feelings about the ETF. In the short term, the prospect of large investors could see a price surge. Conversely, these investors are likely not actual bitcoin users, yet they bring increased regulatory scrutiny.

Unless bitcoin’s value falls to double figures or zero, long-term enthusiasm is unlikely to go away. In the meantime, though, users may have to be content with reduced spending power as the industry explores new ways to inject more value.

Was the SEC ruling what you expected? What does it mean for Bitcoin? Let us know in the comments.

Image via Pixabay

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