The most prominent financial watchdog in the US has decided not to list what would have been the first US exchange-traded fund to track the movement of bitcoin.

The US Securities and Exchange Commission last week rejected a request to list what would have been the first US exchange-traded fund designed to track bitcoin, the controversial crypto-currency.

Twins Tyler and Cameron Winkelvoss, former Olympic rowers and entrepreneurs who in 2004 successfully sued Facebook founder Mark Zuckerberg for $65 million, tried for more than three years to convince the SEC to approve the ETF. Spencer Bogart, head of research at venture capital investor Blockchain Capital, predicted that some $300 million could have flowed into the ETF in its first week, should it have been approved.

But the SEC’s decision last Friday initially sent the price of bitcoin plummeting. It fell as much as 18 per cent in trading immediately after the announcement but rebounded healthily over the weekend. It last traded down 0.34 per cent to $1,225 at 10:06am on March 13.

"Based on the record before it, the commission believes that the significant markets for bitcoin are unregulated," the SEC said in a statement. "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."

Earlier this month, bitcoin surged to a record-high of nearly $1,300 and exceeded the price of an ounce of gold as investors speculated that an ETF holding the crypto-currency could spur more investors to buy into the asset.

But bitcoin continues to face infrastructure issues, which would likely deter more traditional investors from pouring cash into an instrument that tracks the movement of it.

Last year, the price of bitcoin plummeted after hackers stole around $65 million worth of the digital currency from Hong Kong-based exchange platform Bitfinex. The theft revived concerns about the security of bitcoin.

Regulators worldwide have raised questions and concerns about how bitcoin ETFs, in theory, would work and whether they could be priced and trade effectively.

"We began this journey almost four years ago, and are determined to see it through," said Tyler Winklevoss, according to media reports. "We agree with the SEC that regulation and oversight are important to the health of any marketplace and the safety of all investors."

The Winkelvoss twins are renowned for their feud with Facebook founder Mark Zuckerberg over whether he stole the idea for what has become the world’s most popular social networking site from them. The pair ultimately settled the legal dispute for $65 million of Facebook shares, which are now worth around $100 million. The fiasco was dramatized in the 2010 film The Social Network.

Since then, they have become major supporters and investors in bitcoin. In April 2013, the brothers claimed they owned nearly 1 per cent of all bitcoin in existence at the time.