SEC questions Bitcoin ETFs over investor protection issues

SEC questions Bitcoin ETFs over investor protection issues”

In its letter, signed by Dalia Blass, director of investment management, the SEC points to "a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors", citing numerous concerns around cryptocurrency valuation, liquidity, and arbitrage, among others.

"Although some funds may propose to hold cryptocurrency-related products, rather than cryptocurrencies, the pricing, volatility and resiliency of these derivative markets generally would be expected to be strongly influenced by the underlying markets".

"To the extent a fund plans to hold cryptocurrency directly, how would it satisfy the custody requirements of the 1940 Act and relevant rules?" the SEC asked in a letter to the Investment Company Institute and Securities Industry and Financial Markets Association.

The regulator concluded her letter saying that, "until the questions identified above can be addressed satisfactorily", her agency did not believe "it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products".

The SEC's division of investment management demanded answers to at least 31 detailed questions about how mutual funds or exchange-traded funds based on bitcoin would store, safeguard, and price that asset.

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The price of bitcoin soared well over 1,000 per cent previous year, and according to Coindesk a number of recent filings have been made to the SEC for cryptocurrency-related ETFs.

The SEC already blocked the creation of a bitcoin ETF by the Winklevoss twins, Tyler and Cameron, last year.

Investors flocked to cryptocurrencies such as Bitcoin as their values skyrocketed toward the end of 2017.

Bitcoin was trading up more than four per cent at $11,733 at the time of writing.

How would funds develop and implement policies and procedures to value, and in many cases "fair value", cryptocurrency-related products?

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