The SEC has said it will not approve cryptocurrency exchange-traded funds (ETFs) until its concerns about best protecting investors are fully met.
“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,” Dalia Blass, director of investment management at the SEC, wrote in a letter addressed to two U.S. trade groups.
An ETF is an investment fund which tracks certain securities that are traded on an exchange. Bitcoin ETFs — which naturally follow bitcoin — have long been a favored hobby horse of crypto enthusiasts who have been waiting for such investment funds since the Cboe and CME exchanges launched last year.
The SEC’s two main areas of concern with such products are volatility and fund liquidity. ETFs require daily valuations and redeemability, which could be tested by digital currency assets.
“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?” the letter asks.
Bass goes on to ask, “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?”
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.”