U.S. regulators rejected an exchange-traded fund based on bitcoin, wiping out weeks of gains for the digital currency as investors speculated the Securities and Exchange Commission would approve the security.
The SEC refused to grant an exemption that would have let the Winklevoss Bitcoin Trust trade on the Bats BZX Exchange, according to a filing posted Friday on the regulator's website. The decision ended a months-long rally that pushed the virtual money's value higher than gold. Bitcoin fell as much as 18 percent against the dollar to $978.76 after the decision, the lowest intraday price in a month.
Friday's decision doesn't close the door on a possible future ETF based on bitcoin, but it makes the path more complicated. The SEC rejected the application because the Bats exchange would be unable to enter into necessary surveillance-sharing agreements given that "significant markets for bitcoin are unregulated," according to a filing on the agency's website. "The Commission does not find the proposed rule change to be consistent with the Exchange Act."
The ruling is a significant setback for Tyler and Cameron Winklevoss, the twin brothers famed for their dispute with Mark Zuckerberg over the origins of Facebook. They had been working with regulators and tweaking their proposal for years.
"We remain optimistic and committed to bringing COIN to market, and look forward to continuing to work with the SEC staff," Tyler Winklevoss said in a statement. "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."
Hannah Randall, a spokeswoman for Bats, said the exchange is reviewing the ruling and declined to comment further.
The decision by the SEC was made by the Trading and Markets Division staff, according to the filing. Agency staff has so-called delegated authority to effectively approve new ETFs without a vote by commissioners.