For a crowd of uber-distrustful cryptoanarchists, bitcoiners are still a pretty optimistic lot. How else to describe the price action over the weekend for the digital currency, which ostensibly suffered a sharp setback after the Securities and Exchange Commission denied an application from Cameron and Tyler Winklevoss to build and sell a bitcoin-based exchange traded fund?
The price of bitcoin on Friday plunged after the SEC order came out. After trading as high as $ 1,325 during the morning, it fell as low as $ 1,022 in the immediate aftermath of the order. On Monday, though, bitcoin traded as high as $ 1,247, according to CoinDesk. On Tuesday, the price was in the same range, trading at $ 1,242. Volumes were especially high on Friday, but have since returned roughly to the ranges the market was seeing previously.
That’s not so surprising, really. Most bitcoin traders are also bitcoin backers. Some in the market were arguing that traders should buy on an SEC denial, even before the denial was issued. “If it [bitcoin] does correct Friday,” said Reggie Middleton, a bitcoin entrepreneur and investor, last Wednesday, “I think it’s a buying opportunity, because people are overreacting.”
The SEC decision was less about the Winklevoss twins’ specific proposal, than it was about the nature of bitcoin exchanges around the world. The SEC staff that wrote the decision did not take an explicit position on bitcoin itself, but instead focused on the issue of regulation of the exchanges that trade it. The vast majority are unregulated, and the SEC said that lack of transparency into bitcoin’s market was the reason for the denial.
That could make it hard for the other two firms, SolidX Management and Grayscale Investments, that have also proposed publicly regulated and traded ETFs. Neither has publicly commented on the SEC ruling. The Solidx proposal has a deadline of March 30. Grayscale’s isn’t until September.
To an extent, the SEC decision is a blow to the budding use case of bitcoin as a store of value, but it may have saved the currency from experiencing another wild swing. Had the SEC given the Winklevoss Bitcoin Trust an approval, it almost certainly would have seen new money coming into the asset.
Back in January, Needham analyst Spencer Bogart had estimated an ETF could attract as much as $ 300 million in its first week. That kind of influx, given the pre-programmed limits on bitcoin creation, would have resulted in some severe pricing pressure on a fixed asset. “Opening up this much potential access to bitcoin this fast could have created a significant bubble,” said Hossein Kazemi, senior adviser at the Chartered Alternative Investment Analyst Association.
However, even without new money coming in, bitcoin and its ilk are seeing rising demand. In addition to bitcoin’s rising price, myriad so-called alt-coins are also seeing money pour into them. The result is that the collective market cap for the entire landscape of digital currencies–including bitcoin alternatives like ether, dash and namecoin–rose by a more than $ 4 billion over the weekend, according to CoinDesk. That led bitcoin entrepreneur Vinny Lingham to warn on Twitter that “a lot of unsuspecting noobs are pumping fiat into alt coin…classic pump and dump schemes.”
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