Bitcoin ETFs Questioned By SEC

News, Regulation | January 19, 2018 By:

The US Securities and Exchange Commission (SEC) has raised a series of investor protection concerns about bitcoin exchange-traded funds (ETF), an investment vehicle that tracks the performance of bitcoin.

A host of companies are hoping to launch bitcoin ETFs, but regulators have been scrambling to figure out how to deal with this relatively new asset.

On Thursday, the SEC sent a letter to two trade groups representing fund managers who unleashed a range of proposals for funds holding bitcoin. The regulator asked a series of questions on topics including concerns about market manipulations, whether funds could accurately value the volatile products, and whether investors can understand the risks.

“There are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors,” said Dalia Blass, who runs the regulator’s investment management unit, in the letter. Until the SEC’s questions were answered, the agency didn’t think it was “appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products.”

Dechert LLP lawyer Jeremy Senderowicz, who represented one proposal for a bitcoin ETF before the SEC, said the regulator’s statement is a “really big deal” by making public concerns that fund managers would have had to address on a case-by-case basis, behind the scenes.

“It shows that they’re going to have to take some time to consider the industry’s responses before they change their minds on it,” said Senderowicz.

Last week, trusts controlled by Rafferty Asset Management LLC and Exchange Traded Concepts LLC each canceled plans to launch three bitcoin funds that could be traded by retail investors.

In March, 2017, The SEC rejected the Winklevoss Bitcoin Trust. At the time, the regulator said that significant markets for bitcoin are unregulated. The lack of such regulation raised concerns about the potential for fraudulent or manipulative acts and practices in this market.