A Winklevoss ETF Reboot? Analysts See Uphill Battle Ahead

A decision by a major exchange to fight the SEC rejection of a proposed bitcoin ETF has little chance of success, according to analysts polled by CoinDesk.

Bats BZX Exchange, one of the largest US equities markets, recently filed a petition asking US regulators to reconsider a ruling on the bitcoin fund proposed by investors Cameron and Tyler Winklevoss. Should it be approved, the Winklevoss Bitcoin Trust would be the first-ever bitcoin-based ETF, and would list on the Bats BZX Exchange.

However, SEC decisions are rarely overturned, according to Jeff Bishop, ETF expert and co-founder of investor message board platform RagingBull.com.

Bishop said:

"The only reason it would be overturned would be if new facts were produced to overcome [the SEC's] initial objections."

Phil Bak, a former New York Stock Exchange managing director and current CEO of ETF issuer ACSI Funds, also painted a bleak outlook for the appeal, stating that he does not know of any instances where a rejected ETF was successfully petitioned.

'Immature markets'

There are a number of significant obstacles that could prevent the petition from getting anywhere, according to those CoinDesk surveyed.

To have any real chance of succeeding, Bats would need to address every single objection listed in the SEC's rejection letter, according to Bak.

The SEC stated its objections to the proposed fund in a 38-page ruling, emphasizing the bitcoin market's lack of exchange regulation and surveillance-sharing agreements that would help prevent market manipulation across jurisdictions.

This reference to regulation could eliminate the proposed ETF's chances of survival in and of itself, since, for many, part of bitcoin's appeal is its ability to function without the interference of regulators and central banks.

On the plus side, the letter lets the exchange know what hurdles they need to overcome to be successful, said Bak.

Yet, according to cryptocurrency fund manager Jacob Eliosoff, the reasons the SEC gave for rejecting the proposed ETF are fundamental to the bitcoin market.

Petar Zivkovski, COO of leveraged digital currency trading platform Whaleclub, said the petition is unlikely to change the SEC's stance.

He said:

"The reason for the rejection is fundamentally tied to the state of bitcoin and the bitcoin markets – they are currently too immature, illiquid, and rampant with manipulation for the SEC to approve an ETF."

Possible approaches

Joe Lee, co-founder of Magnr, gave a more in-depth perspective, speaking to the risks associated with listing an ETF on the Winklevoss' Gemini exchange.

Liquidity was the number one cause for rejection, he asserted. Further, Gemini's liquidity levels are low, making it easy for traders to manipulate "a financial product based off the exchange or its quoted prices", he said.

"A petition will not change this," he added.

Yet, while the the situation may appear less than promising, there are still rays of hope. The simple fact that Bats has decided to petition the SEC decision means the agency's rejection may not be final.

Further, since Bats knows exactly why the SEC rejected the fund, the exchange can consider different approaches in an effort to alter the ruling.

At the time of report, Bats had not provided any comment on its strategy going forward or why the SEC might overturn its ruling.

However, a representative told CoinDesk that more documentation was likely to be filed soon.

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