Bitcoin Falls Below $19,000 as SEC Deals Blow to Institutional Crypto Adoption

© Reuters

By Geoffrey Smith 

Investing.com -- Bitcoin briefly slid below $19,000 again and Ethereum flirted with the $1,000 level on Thursday, before paring losses, as market participants pared back their hopes for mass adoption of cryptocurrency products by institutional investors. 

On Wednesday, the U.S. Securities and Exchanges Commission had rejected the latest attempt by crypto investor Grayscale to turn its Bitcoin Trust into an exchange-traded fund with spot Bitcoin as its underlying product. It said Grayscale's proposal to list the ETF failed to guarantee the prevention of "fraudulent and manipulative acts and practices” and “to protect investors and the public interest.” Specifically, it objected to the lack of a surveillance sharing mechanism with exchanges that trade Bitcoin.

Grayscale immediately sued the SEC in response, Chief Executive Michael Sonnenshein saying he will continue to "leverage the full resources of the firm to advocate for our investors and the equitable regulatory treatment of bitcoin investment vehicles."

The SEC's decision didn't altogether come as a surprise - it has already blocked a dozen such applications in the last year - but may have been enough to prompt redemptions from holders of the trust who had hoped for a better outcome. The Grayscale Bitcoin Trust already trades at a discount to its net asset value, meaning that it is a comparatively less expensive way to gain exposure to Bitcoin. 

The SEC's attitude toward crypto is unlikely to have improved much against the backdrop of recent upheaval in the sector caused by the sharp drop in the values of Bitcoin and many other digital currencies. The selloff has triggered a series of decisions to freeze investors' deposits by various investment platforms whose risk management has been found wanting.  

Celsius Network, with 1.7 million users and the equivalent of $12 billion in assets under management, the biggest of the platforms to freeze withdrawals, lurched deeper into crisis on Thursday, as a report by The Block claimed that FTX had decided not to buy the company after finding a $2 billion hole in its balance sheet. Celsius hasn't commented.

Another distressed platform, Coinflex, said on Thursday it's unlikely to be able to resume normal operations as outlined a week ago, as it's still trying to raise money through the issuance of new tokens. CoinFlex CEO Mark Lamb has said it is owed $47 million by a single investor, Roger Ver, to whom it has now served a notice of default.

By 11:20 AM ET (1520 GMT), Bitcoin was down 4.6% at $19,127, while Ethereum was down 8.0% at $1,026.92.