Companies that wish to list exchange-traded fund (ETF) linked to cryptocurrencies will now find the approval process hindered by the SEC
The Securities and Exchange Commission (SEC) said Friday that funds holding or tracking cryptocurrencies pose “significant investor protection issues” and should not be registered with exchanges.
The move was laid out in a letter sent by Dalia Blass, director of the SEC’s investment management division, to the Investment Company Institute and Securities Industry and Financial Markets Association. The SEC essentially said there were too many unanswered questions to allow for cryptocurrency ETFs without creating excessive risks for investors and before they’ll approve a digital currency fund for Main Street investors. This week the Securities and Exchange Commission sent a letter listing more than 30 of them to trade groups representing the investment industry.
The SEC already blocked the creation of a bitcoin ETF by the Winklevoss twins, Tyler and Cameron, last year.
A cryptocurrency ETF would allow people to invest in virtual coins without owning them directly—instead, they would own shares in the ETF, which owns the coins, and could therefore see their investment grow if the value of the cryptocurrencies held appreciates.
Wealthy investors already can buy and sell cryptocurrencies directly, but ETFs, which have become more popular in recent years due to their low management fees and the fact they they (unlike mutual funds) can be bought and sold during the trading day, would open the same possibility to more people with brokerage accounts.
The SEC questioned how bitcoin’s volatility and potential illiquidity would fit with funds that must calculate a fair market price for their portfolio at the end of every trading day and allow investors to easily cash out their shares.
Investors flocked to cryptocurrencies such as Bitcoin as their values skyrocketed toward the end of 2017. Major exchanges began trading cryptocurrency derivatives — bets on the future value of an asset — and listing funds that included cryptocurrencies.
Several ETF issuers have been racing to launch the first bitcoin fund amid a speculative frenzy for digital currencies, but the SEC has so far been skeptical. The agency has also expressed reservations about initial coin offerings, saying that many ICOs, in which a firm raises money from investors in exchange for a new coin, are securities sales that should comply with its investor protection rules.
The SEC letter comes as lawmakers and regulators mull how to handle the rapid rise of cryptocurrencies. SEC Chairman Jay Clayton and Commodity Futures Trading Commission Chairman J. Christopher Giancarlo will testify before the Senate Banking Committee in February on their efforts to oversee cryptocurrencies.