Allay Investor Fears Before Launching Crypto ETFs, SEC Tells Securities Industry

The SEC has called on traders to resolve issues that spook investors before offering them cryptocurrency ETFs.

The U.S. Securities and Exchange Commission (SEC) on Wednesday urged the securities industry to address “significant investor protection issues" before offering cryptocurrency-related products, cryptocurrency ETFs (exchange-traded funds) in particular, to retail investors.

Dalia Blass, director at SEC’s Division of Investment Management, outlined key problematic areas of cryptocurrency trading in a letter addressed to the Investment Company Institute and the Securities Industry and Financial Markets Association.

These areas include the valuation of underlying cryptocurrency assets held by ETFs and mutual funds; the liquidity of the funds’ assets; standards regarding who may act as a custodian for the assets; trading arbitrage for ETFs; and the risk of potential market manipulation of the assets.

Blass wrote in her letter: 

“Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products, and we have asked sponsors that have registration statements filed for such products to withdraw them.”

However, Blass assured traders the SEC is ready to engage in a dialogue with them to further develop such funds, adding that the agency appreciates the range of benefits identified by the proponents of cryptocurrencies and related products.

Massive Sell-Off

The massive sell-off affecting almost all major digital currencies early this week underscores the concerns expressed by regulators worldwide over the volatility in the cryptocurrency space. Developments in China and South Korea about a possible ban on cryptocurrency exchanges sent shivers through virtual currency investors, pushing Bitcoin below $12,000 on Tuesday to match December 5, 2017 levels.

We also reported about a joint analysis by researchers at Tel Aviv University and the University of Tulsa, whose findings suggest that the spectacular rise of Bitcoin from $150 to $1,000 between October and November 2013 was likely the result of market manipulation. The researchers released their findings in a paper titled “Price Manipulation in the Bitcoin Ecosystem.”

Bitconnect, the crypto exchange long suspected of running a Ponzi scheme, said on Tuesday it would cease operations because, among other things, “the continuous bad press has made community members uneasy and created a lack of confidence in the platform.”

Issues like these only add to uncertainties about the future of the cryptocurrency space and provide ammunition to its critics.