Winklevoss ETF Turned Down by SEC

Blockchain, FinTech, Investing, News, Regulation | March 10, 2017 By:

The highly anticipated application for the first US exchange-traded fund for bitcoin has been turned down by the Securities and Exchange Commission.

The Winklevoss Bitcoin Trust (WBT) was designed to make it easier for small investors to buy bitcoins.

The process is a bitter result for Cameron and Tyler Winklevoss, the twin brothers who founded Facebook and later received a large legal settlement when ownership disputes arose. The SEC was weighing a rule change that would allow the Winklevoss ETF to be listed on the Bats BZX Exchange Inc.

The SEC Notice:

“As discussed further below, 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.

Based on the record before it, the Commission believes that the significant markets for bitcoin are unregulated. Therefore, as the Exchange has not entered into, and would currently be unable to enter into, the type of surveillance-sharing agreement that has been in place with respect to all previously approved commodity-trust ETPs—agreements that help address concerns about the potential for fraudulent or manipulative acts and practices in this market—the Commission does not find the proposed rule change to be consistent with the Exchange Act.”

The chartered trust would have allowed the 35-year-old twins to be first to market, but on the horizon are pending applications from Barry Silbert’s Bitcoin Investment trust, and SolidX Bitcoin Trust.

The ETF is an investment vehicle that tracks the performance of an asset – in this case, bitcoin. It’s a piece of paper keyed to whatever price the bitcoin is pegged to. If approved, anyone who trades on the Bats exchange will be able to invest in Bitcoin. You will not need to store and secure them, since you don’t own the actual digital currency. This may lead to a boom, since the need to secure the coins is eliminated, a major barrier to many.

The ETF doesn’t have insurance if the bitcoins are lost are stolen, and there is a fee for any transactions.