US Securities and Exchange Commission, hereinafter SEC, officially rejected its second Bitcoin ETF proposal. SolidX, which was long considered as the rival ETF proposal to the Winklevoss twins’ Bitcoin ETF COIN, was denied for the lack of investor protection and overseas Bitcoin trading regulation.

Nearly identical reason to the rejection of COIN ETF

SEC denied the approval of the SolidX ETF for the identical reasons to that of the Winklevoss twins’ COIN ETF. In its official document, the SEC stated that SolidX lacks surveillance sharing agreements and investor protection for the buyers of the ETF.

Bitcoin as a decentralized financial network and peer-to-peer protocol can’t be regulated. Businesses launched on top of the Bitcoin network can be regulated by the government but the network itself isn’t possible to control or manipulate.

Therefore, unlike centralized financial networks, it is virtually impossible for an ETF provider to agree to surveillance sharing agreements. It is more difficult to trace down the origin and the flow of Bitcoin transactions in contrast to other financial tools or assets involved with existing ETFs in the market.

The SEC wrote:

“[SEC didn’t] 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. The Commission believes that, in order to meet this standard, an exchange that lists and trades shares of commodity-trust exchange- traded products (“ETPs”) 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, those markets must be regulated.”

End of all ETF talks?

Based on the response of the SEC in regard to the denial of SolidX, it can be concluded that Bitcoin ETFs will not be approved nor introduced to US public markets anytime soon. In their document SEC noted the lack of regulation in overseas trading as one of the major reasons for the denial of SolidX.

That is a component which ETF providers can’t improve upon or alter, and thus, if that is a real concern for the SEC, then until the global Bitcoin exchange market becomes as strictly regulated as the US market, ETFs will not be introduced in the US.

Still, Bitcoin price is showing resilience toward the SEC ruling. When the Winklevoss twins’ Bitcoin ETF was denied, Cointelegraph reported that price fell from around $1,200 to $960 within minutes. The community has realized that Bitcoin ETFs aren’t necessary for mainstream adoption and for Bitcoin to grow as a digital currency, digital gold and a settlement system.