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The SEC argued that the rule changes to tackle fraud and manipulation made by BZX exchange did not meet the requirements of Exchange Act and the commission’s existing guidelines.
On Thursday, July 26, the U.S Securities and Exchange Commission (SEC) published a report rejecting the Bitcoin ETF proposal filed by the Winklevoss twins back in June. Winklevoss twins, as we know, are the founders of Gemini exchange and probably the first ones to make a billion-dollar by investing in Bitcoins. CNBC reports that the proposal to list the Winklevoss Bitcoin Trust’s commodity-based shares on BATS BZX Exchange was voted down 3-1 by the securities watchdog on Thursday.
Of course, SEC had its reason behind this rejection stating that the proposal put forward by the Winklevoss brothers falls short of addressing and preventing issues of fraud and price manipulation in the cryptocurrency market. However, the SEC emphasizes in its document that this rejection of the proposal is in no way a judgement on blockchain or cryptocurrencies. It just states that the rule changes that were proposed by BZX after the first rejection of their Bitcoin ETF last year in February, don’t meet the requirements of Exchange Act and the commission’s existing guidelines. The document reads:
“Although the Commission is disapproving this proposed rule change, the Commission emphasizes that its disapproval 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.”
On the other hand, the SEC also goes on to argue that Bitcoin is a globally traded cryptocurrency, and a majority of the trading happens outside the purview of the agency. SEC thus claims that in such case there is no guarantee for the protection of investor’s money against fraud and manipulations. SEC further added to mitigate these concerns:
“BZX would need to “enter into surveillance-sharing agreements with, or hold Intermarket Surveillance Group membership in common with, at least one significant, regulated market relating to bitcoin” as“[s]uch agreements provide a necessary deterrent to manipulation because they facilitate the availability of information needed to fully investigate a manipulation if it were to occur.”
The document notes that BXZ exchange puts a strong argument stating that the “geographically diverse and continuous nature of bitcoin trading makes it difficult and prohibitively costly to manipulate the price of bitcoin,” rendering it “generally … less susceptible to manipulation than the equity, fixed-income and commodity futures markets.”
In a counter-argument, the SEC says that since BZX “has not established that it has entered into, or currently could enter into, a surveillance-sharing agreement with a regulated market of significant size related to bitcoin,” it cannot support claims that it have taken enough measures to tackle the concerning issues of fraud and manipulation.
However, the SEC notes that it has certainly kept the doors open for considering more Bitcoin ETF proposals in the future. The commission said:
“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,” the agency continued. The Commission would then have the opportunity to consider whether a bitcoin ETP would be consistent with the requirements of the Exchange Act.”
Bitcoin Reacts To the SEC’s Decision, Slips Below $8000
The ripples of the SEC’s rejection of Bitcoin ETF were soon felt in the crypto markets as the strong going Bitcoin in last one week corrected by nearly 4% slipping below its crucial $8000 support. At the press time, Bitcoin is seen trading at $7958, according to the data on CoinMarketCap.
The euphoria in the Bitcoin price over the last week was seen with the SEC receiving an overwhelming positive public opinion on the need to launch a Bitcoin ETF. The opinion was basically given on the CBOE Bitcoin ETF filed with the SEC last month the ruling on which is expected by next month. However, as per insider sources from SEC and CFTC, there is a large possibility that this proposal could be accepted.
Additionally, a decision on another Bitcoin ETF filed by the investment firm Direxion has been postponed to September 21. “The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change. Accordingly, the Commission, … designates September 21, 2018, as the date by which the Commission shall either approve or disapprove the proposed rule change,” the SEC said.