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All things considered, bitcoin isn't doing all that badly after the SEC's rebuff on Friday of the Winklevoss twins' bid to establish an exchange traded fund for the digital currency.
As of this moment, bitcoin is valued at approximately $1229, down just slightly less than 5 percent from its high of $1290 on March 3, exactly one week out from the SEC decision.
That's still pretty stellar performance for the currency, which opened the year at approximately $997. Adding nearly 25 percent in value within less than three months is no mean feat.
As for the SEC decision, the commission cited predictable concerns in the text of its order concerning the Bats BZX Exchange Inc. proposal:
The commission believes that, in order to meet this standard, an exchange that lists and trades shares of commodity-trust exchange-traded products 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, 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.
Concerns about manipulation of the price of bitcoin by Chinese exchanges seemed to weigh heavily in the SEC's final decision, and were widely cited in public communications the commission received during the comment period of its review process.
As one commenter wrote:
Price manipulation by the Chinese has been rampant since the beginning in the form of zero-fee trading resulting in huge, fake volume by several of the Chinese exchanges combined with empty threats of banning bitcoin by the [People's Bank of China], resulting in huge price drops each time. It's also very important to note that the PBOC has recently announced that they will be releasing their own digital currency called the RMBCoin at some point in the future, in order to stem the flow of capital flights that bitcoin is used for. This could certainly result in the outright ban of bitcoin in a country that holds a very large percentage of the world's bitcoin miners, which is possibly 50 percent or more.
Given the relatively mild fluctuation in the price of bitcoin since Friday, it would seem that the bitcoin community was not as keen on the Winklevoss proposal as it was curious to learn whether the twins could pull off an ETF.
In fact, there may be some relief among digital currency die-hards who would just as soon not see bitcoin co-opted by the Wall Street establishment.
Moreover, given the SEC's unequivocal "NO" to the proposed rule change and its obvious unwillingness to touch with a 10-foot pole any exchange-traded product lacking reliable mechanisms for international surveillance and regulation, it seems unlikely that the bitcoin market — at least in the U.S. — will see another ETF proposal floated for quite a while. Never mind the half-hearted acknowledgement by the SEC that:
The commission notes that bitcoin is still in the relatively early stages of its development and that, over time, regulated bitcoin-related markets of significant size may develop. Should such markets develop, the commission could consider whether a bitcoin ETP would, based on the facts and circumstances then presented, be consistent with the requirements of the Exchange Act.
In the meantime, virtual currencies will have to continue to nibble around the edges of mainstream respectability, an also-ran to the blockchain and distributed-ledger technologies that spawned the bitcoin boom and then stole its thunder.
The full text of the SEC order — including a summary of the 59 comment letters the commission received regarding the proposed rule change, as well as a detailed analysis and rationale for the commission's final decision — is available online, and is worth a read.