It has been another wild ride of a week for bitcoin in the wake of the SEC ruling.
At the tail end of last week, the Securities and Exchange Commission ruled the proposed Winklevoss bitcoin ETF a no-go by nixing a proposed rule change that would have led to the fund being listed on the Bats BZX Exchange.
The reason? Lack of oversight, regulation and the potential for fraud in the broader bitcoin space.
In a release on the matter, the SEC wrote: “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 SEC noted that for them to approve an exchange that lists and trades shares of commodity-trust, exchange-traded products, the exchange must first have surveillance-sharing agreements with significant markets. Additionally, those markets must be regulated.
In a statement, Tyler Winklevoss commented that work will continue on the ETF, writing, “We remain optimistic and committed to bringing COIN to market and look forward to continuing to work with the SEC staff. We began this journey almost four years ago and are determined to see it through. We agree with the SEC that regulation and oversight are important to the health of any marketplace and the safety of all investors.”
This is a hard pill for some to swallow. The prospect of a bitcoin ETF had investors betting big on digital currency, with many seeing SEC approval as a major milestone on the journey toward bitcoin legitimacy.
However, there was a bit of a silver lining. The SEC didn’t rule out the possibility that significant, regulated bitcoin markets could eventually come into being as the ecosystem matures.
Still, some aren’t satisfied with that. Jerry Brito, executive director of cryptocurrency advocacy group Coin Center, notably queried, “How do we develop well-capitalized and regulated markets in the U.S. and Europe if financial innovators aren’t allowed to bring products to market that grow domestic demand for digital currencies like bitcoin?”
In the wake of the SEC decision, bitcoin’s value fell considerably.
Within the first hour post-rejection, bitcoin plummeted from over $1,285 down to $1,066, according to CoinDesk’s exchange. Other trackers pegged the low point even lower, well under $1,000.
Almost as quickly as prices fell did they rise again. By Saturday evening, bitcoin had recovered back above $1,100; by Sunday afternoon, bitcoin was above $1,200. It even broke back into the $1,250 range by Tuesday. At the time of writing, bitcoin was worth $1,217.65, down 3.33 percent from Wednesday’s close with a current market cap estimate of over $19.75 billion.
The SEC decision doesn’t bode well for the other two bitcoin-based ETF proposal filings still under consideration. The decision deadline for New York-based startup SolidX’s proposed bitcoin ETF, which seeks as much as $1 million worth of shares, is currently scheduled for March 30, following a delay from September of last year.
The other candidate for SEC approval is Grayscale Investments’ Bitcoin Investment Trust. Grayscale filed with the SEC to have its trust listed on the NYSE back in January, seeking to launch with some $500 million. At the time, Needham Analyst Spencer Bogart noted that the likelihood of a bitcoin-based ETF being approved by the SEC in 2017 was low.
As of now, it stands to reason that the possibility of approval is even lower for the two remaining bids, given that the highest-profile bid was turned down. While some have noted that these two proposed ETFs link their pricing mechanism to different indexes than the Winklevoss ETF, the nature of the broader bitcoin market was the major impetus behind the SEC decision — and as of now, the nature of that market remains the same.
It will likely take a push from within the bitcoin ecosystem to work toward SEC or other regulating standards — though how this could be accomplished remains an open question.
Still, the SEC dream deferred hasn’t had a negative impact elsewhere in the realm of digital currencies. For some, it was quite the opposite.
Competitor cryptocurrency Ether, whose distributed ledger technologies have inspired a blockchain alliance, has hit record high values in the wake of the SEC decision. Ether prices have risen more than 100 percent since March 10, leaping from a low of $17.68 to over $42 on Thursday morning. While influence and inciting events in the crypto-markets are notoriously tough to pin down, the sudden jump in price is likely connected to the bitcoin ETF news.
The timing is uncanny. Perhaps it indicates that investors are digitally hedging their crypto-bets. If anything, they’re looking to ensure they have at least some stake in another viable digital currency/blockchain option.