Cameron and Tyler Winklevoss. Photo: Jason Doiy/ALM

The U.S. Securities and Exchange Commission has again rejected a bitcoin-based Exchange-Traded Fund proposed by Tyler and Cameron Winklevoss, founders of the Gemini Bitcoin Trust.

At least one expert saw a bright spot in the order, however.  Ridgway Barker,  partner on the corporate team of international law firm Withers, said Friday that, “while receiving a disapproval from the SEC on an application such as this is certainly disappointing, there is a bit of a silver lining in that the SEC has laid out in reasonable detail the concerns that lead it to that conclusion.  These concerns are largely data driven, and one could use them to create a sort of roadmap to approval. I do not believe that that challenges are insurmountable.”

The order released Thursday was in response to a request by Bats BZX Exchange Inc. for review of a proposed rule change, filed with the commission’s Division of Trading and Markets in June 2016, which had previously been rejected by the SEC in March 2017. The rule change would have allowed listing and trading of shares of the Bitcoin Trust. BZX filed a petition for review of the disapproval order.  The SEC’s decision on Thursday set aside the March 2017 disapproval order, but again rejected BZX’s proposed rule change. The order signed by SEC Secretary Brent Fields states:

“As addressed in detail above, the commission is disapproving the proposed rule change because BZX has not met its burden to demonstrate that its proposal is consistent with Exchange Act Section 6(b)(5). BZX has neither entered into surveillance-sharing agreements with regulated, bitcoin-related markets of significant size nor demonstrated that alternative means of compliance with Exchange Act Section 6(b)(5) would be sufficient. Because BZX has failed to carry its burden, the proposed rule change must be disapproved.”

The SEC order further states that the commission “does not find BZX’s proposed rule change to be consistent with Exchange Act Section 6(b)(5)’s requirement 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.’”

Cameron Winklevoss, co-founder and president of Gemini, said in an emailed statement Thursday: “Despite today’s ruling, we look forward to continuing to work with the SEC and remain deeply committed to bringing a regulated bitcoin ETF to market and building the future of money.”

The commission’s 92-page order said that it rejected BZX’s arguments that “geographically diverse and continuous nature of bitcoin trading makes it difficult and prohibitively costly to manipulate the price of bitcoin” and that the bitcoin market “generally is less susceptible to manipulation than the equity, fixed income, and commodity futures markets.”

The SEC hasn’t yet approved any cryptocurrency-based exchange-traded fund citing concerns with market manipulation, security and investor protection as detailed in the order.

Ropes & Gray represents the brothers in ETF matters, a Gemini Trust spokesperson said.

This story was updated on Friday with new information regarding the law firm representing the Winklevoss brothers in the matter before the SEC, and comment by Withers partner Ridgway Barker.