The price of Bitcoin plummeted after the US Securities and Exchange Commission (SEC) denied a request to bring Bitcoin to the financial market, highlighting how the value of the virtual currency can change within minutes.
In February, the virtual currency’s value reached an all-time high of over $1,300 with investors taking a punt on rumors SEC would allow the first Bitcoin ETF.
An exchange-traded fund (ETF) allows for the trade of commodities and assets like common stock, which in turn would allow Bitcoin to reach a wider pool of investors and traders and potentially increase the popularity of cryptocurrency.
However, sticking to a deadline of 11 March, SEC rejected the idea of a Bitcoin ETF on Friday despite the request being three years in the making by the Winklevoss Bitcoin Trust, an agency created by Cameron and Tyler Winklevoss.
According to a SEC filing (.PDF), a Bitcoin ETF is not suitable as the virtual currency’s trading systems have not been protected enough against manipulation, fraud, or cyberattacks.
While the trust’s Bats Exchange argues that the Bitcoin marketplace has strengthened in recent years and it is now unlikely that price manipulation would be successful in markets worldwide, SEC remains unconvinced at this time.
“The significant markets for bitcoin are unregulated,” the filing reads. “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 [exchange-traded products] [..] the Commission does not find the proposed rule change to be consistent with the Exchange Act.”
Following the news, the price of Bitcoin plummeted as much as 18 percent to a low of $1,098 in little more than a quarter of an hour.
However, a few days later, the price of Bitcoin has recovered and rebounded to $1234.46 at the time of writing.
Such a quick decline — and turnaround — is one of many examples of the virtual currency fluctuating. While the cryptocurrency represents a way for currency to be traded quickly worldwide without the need for a central authority such as a bank or government, Bitcoin also represents new risks that investors and traders must face.
Cybersecurity is one such issue. Bitcoin’s past is peppered with successful cyberattacks against cryptocurrency exchanges, including Bitstamp, Cryptoine, and Bitfinex. It is not only external threats that can impact the value of Bitcoin, however, as Mt. Gox CEO Mark Karpeles proved.
The sudden closure of Bitcoin trading post Mt. Gox was originally blamed on hackers, but the former CEO is allegedly at the heart of a fraudulent scheme to make off with investor cash.
Another factor and one of which the SEC’s decision largely relied upon is that since a large number of Bitcoin exchanges are unregulated — as well as being outside of the US — there is little in the way of global regulation or standards for security and protections against fraud.
In addition, checks in some countries that have attempted to regulate Bitcoin, such as China, can also cause virtual currency fluctuations.
However, that does not mean there is not scope for a Bitcoin ETF in the future.
“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,” the filing reads.
Tyler Winklevoss told Reuters that the group is “determined” to see the formation of a Bitcoin ETF through to the end.
“We agree with the SEC that regulation and oversight are important to the health of any marketplace and the safety of all investors,” Winklevoss added.