Cryptocurrency Exchange-Traded Funds? Not Yet, Says SEC

Investing, News, Regulation | January 21, 2018 By:

The US Securities and Exchange Commission indicated last week in a letter that it would not approve digital currency exchange-traded funds until certain rules are implemented that would protect investors.

“We believe … that there are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors,” said a letter from Dalia Blass, director of investment management at the SEC. It was addressed to the top officials at two US trade groups. the Investment Company Institute and the Securities Industry and Financial Markets Association.

Cryptocurrency’s volatility and concerns about fund liquidity in view of those extreme swings was the subject of the letter. ETFs require daily valuations and redeemability.

Blass asked,  “Would funds have the information necessary to adequately value cryptocurrencies or cryptocurrency-related products, given their volatility, the fragmentation and general lack of regulation of underlying cryptocurrency markets, and the nascent state and current trading volume in the cryptocurrency futures markets?”

She later added: “How would funds take into account the trading history, price volatility and trading volume of cryptocurrency futures contracts, and would funds be able to conduct a meaningful market depth analysis in light of these factors?”

Unless and until those concerns could be addressed, Blass concluded, it is not appropriate “for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products.”