Bitcoin ETF Discouraged by US SEC on Safety Grounds
The potential for fully legalized inflows of institutional funds through an ETF has been hampered by concerns over the safety of the cryptocurrency sector.
Bitcoin (BTC) exchange-traded funds (ETFs) are unlikely to materialize any time soon, as the latest hawkish move by the US Securities and Exchange Commission (SEC) indicates. Speaking during a New York conference, SEC chairman Jay Clayton expressed worries that cryptocurrencies could be stolen or manipulated by exchanges, Bloomberg reported.
“What investors expect is that the trading in that commodity that’s underlying the ETF is trading that makes sense, is free from the risk or significant risk of manipulation. Those kinds of safeguards don’t exist in many of the markets where digital currencies trade,” Clayton said in an interview conducted by Silver Lake co-founder Glenn Hutchins.
Digital currency exchanges sprung up spontaneously as startups, and 2017 saw an expansion in their number, with a new type of crypto-only marketplaces taking the lead. But there have been numerous accusations that the trading itself is not in any way restricted. From wash trades and spoof orders and bots to the influence of Bitmex derivatives, the market for Bitcoin remains extremely opaque and risky.
While institutions invest in Bitcoin through CBOE and CME futures, there are very few vehicles requiring the outright purchase of Bitcoin. ETFs demonstrated their power to boost the price of the underlying asset when silver and gold funds became popular during the 2008 financial crisis. But since then, the prices of precious metals have stagnated somewhat.
The SEC has turned down several ETF projects, including proposals from the Winklevoss brothers and CBOE. Decision deadlines were, at one point, a major driver of BTC price rallies.
But the persistent hawkish stance of the regulator wore out the enthusiasm, and large sell-offs further depressed BTC prices. The coin stood at $3,895.48 at 4.15 UTC, which is near the price range last seen in September 2017. With no immediate rally in sight, the asset is seen as potentially losing more of its positions.
The big risk with personal Bitcoin investing was highlighted in the past months, as the upward rally unraveled. Nouriel Roubini, who has ramped up his criticism of Bitcoin, also sees the ETF as an impossible achievement:
However, Bitcoin trading on dedicated exchanges continues, and none of the major projects have folded. The world of crypto assets remains rather resilient, even with lowered levels of new investment inflows. Exchanges constantly rework their model to improve safety and experience.