The identical twins who Facebook founder Mark Zuckerberg, in a debate over who created and owned Facebook, derisively called “the Winklevi,” have refashioned themselves in recent years as bitcoin pioneers. Their efforts to launch a financial instrument for virtual currency, the first-ever bitcoin Exchange Traded Fund, however, is not gaining traction with the Securities and Exchange Commission.

For the second time, the Commission has rejected the plan.

An SEC decision released on July 26 expressed skepticism that the venture, the Winklevoss Bitcoin Trust, could adequately protect investors from fraud. Shares of the Winklevoss Bitcoin Trust would be listed and traded on the Bats BZX Exchange.

The SEC, through its Division of Trading and Markets, argues against disapproving BZX’s proposed rule change to allow these transactions because, in its assessment, the proposed rule is inconsistent with securities laws that require 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 brothers do, however, have at least one friendly face at the agency in Commissioner Hester Peirce. She supported their plan and has harsh words for those who failed to approve the initiative.

“Contrary to the Commission’s determination, I believe that the proposed rule change satisfies the statutory standard and that we should permit BZX to list and trade this bitcoin-based exchange-traded product,” Pierce said this week. She expressed concern that the Commission’s approach “undermines investor protection by precluding greater institutionalization of the bitcoin market.”

“More institutional participation would ameliorate many of the Commission’s concerns with the bitcoin market that underlie its disapproval order,” she said. “More generally, the Commission’s interpretation and application of the statutory standard sends a strong signal that innovation is unwelcome in our markets, a signal that may have effects far beyond the fate of bitcoin ETPs.”

Peirce argued that shares of the Winklevoss Bitcoin Trust would trade under BZX Rule 14.11(e)(4), which governs the listing and trading of Commodity-Based Trust Shares. “This rule would require the ETP shares to meet initial and continued listing standards,” she said. “It also would impose obligations on registered market makers in the shares intended to deter market manipulation and other misconduct, including limitations on certain trading activities and a requirement to make available to BZX certain records of transactions by such market makers.”

BZX would have the ability to halt trading in the ETP shares, including in response to market conditions that are inconsistent with the maintenance of a fair and orderly market, she added.

“The concerns underlying the disapproval order go to the merits of bitcoin—and thus the bitcoin-based ETP at issue here—as an investment,” Peirce said. “The order raises concerns about potential future actions of potential large holders of bitcoin, academic speculation about past manipulation in the market, and the lack of regulation of the spot market. Indeed, if the disapproval order’s rigorous standard were applied consistently, many commodity-based ETPs would be in peril, as rumors of manipulation plague many commodity markets, and surveillance-sharing agreements with regulated markets cannot eliminate the sometimes-messy nature of the commodities markets.”

In disapproving the proposed listing, the Commission points to problems in the bitcoin market that Peirce believes “would be mitigated by institutionalizing the market—a phenomenon that bitcoin ETPs would foster.” She argued that the establishment of an ETP would invite more price arbitrage and thus better connections among markets.

“Greater participation by institutional investors in the bitcoin market would help to pressure exchanges to bolster their defenses against theft, encourage greater investment in custody solutions in the bitcoin space, and make it more difficult for market manipulators to escape the notice of their fellow market participants,” Peirce said. “The disapproval order discourages new institutional participants from entering this market.

“Worse, it suggests that approval for bitcoin ETPs will come only when bitcoin spot and derivatives markets have matured substantially, yet, at the same time, contributes to further delay in their maturation, as potential institutional investors may reasonably conclude that the Commission will continue to repress market forces for the foreseeable future.”

The disapproval order, in her mind, “unintentionally undermines investor protection” and precludes investors from accessing bitcoin through an exchange-listed avenue “that offers predictability, transparency, and ease of entry and exit.”

“The disapproval order demonstrates a skeptical view of innovation, which may have an adverse effect on investor protection, efficiency, competition, and capital formation well beyond this particular product,” Peirce said. “By withholding approval of a bitcoin-based ETP because the underlying market insufficiently resembles the markets for other commodities, we set ourselves up as the gatekeepers of innovation. Securities regulators are ill-equipped to fill this particular role.”