Bitcoin has failed in a bid to go legit in the US.

The US Securities and Exchange Commission has denied a request to list a US exchange-traded fund built to track Bitcoin.

Backers were trying to convince the SEC to let them bring the Bitcoin ETF to market, listed on CBOE's Bats exchange.

 The rejection sent the price of the digital currency plummeting by as much as 18 percent in trading, before rebounding slightly.

Bitcoin has a lot of benefits, but investors face risk due to its limited adoption, big security breaches affecting bitcoin owners, and the lack of consistency in how international governments treat it.

“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.”

The regulators are unable to tell whether Bitcoin funds could be priced and trade effectively.

“We began this journey almost four years ago, and are determined to see it through,” said investor Tyler Winklevoss, CFO of Digital Asset Services, which put up the application.

“We agree with the SEC that regulation and oversight are important to the health of any marketplace and the safety of all investors.”

Advocates of the currency and blockchain security in general were dismayed.

“How do we develop well-capitalised and regulated markets in the US and Europe if financial innovators aren't allowed to bring products to market that grow domestic demand for digital currencies like Bitcoin?” asked Jerry Brito, executive director of advocacy group Coin Centre.

Spencer Bogart, head of research at Blockchain Capital, says Bitcoin’s long-term adoption will continue.

There are two other bitcoin ETF applications awaiting a verdict from the SEC -  Grayscale Investments Bitcoin Investment Trust, and SolidX Partners, a US technology company that provides blockchain services.