US SEC Cracks Down on Misleading Blockchain ETFs

Thematic exchange-traded funds were discovered to mislead customers, while expecting a fully legalized Bitcoin ETF.

The US Securities and Exchange Commission (SEC) has increased its scrutiny on exchange-traded funds, finding several occasions where blockchain was misleadingly used in the name, reported Bloomberg.

Thematic ETFs are one of the hottest markets, and the SEC has increased its regulatory oversight to avoid the creation of misleading entities. An ETF derives its value from any underlying asset, from gold to 5G networks.

The hot money flowing into funds meant that even the name of the fund could lead to a mistaken understanding, leading to the SEC intervention.

“We get questions more than we used to where we have to be able to defend our name,” said J. Garrett Stevens, CEO of Exchange Traded Concepts, a creator of up to 26 thematic ETF. “Now almost all names, they’ll come back and say ‘Can you justify, give us your explanation on why this name is OK?’”

The ETF market showed signs of growth after the financial crisis in 2008, booming with gold and silver ETFs. Later, more types of investment were added. However, in late 2018 and 2019 the market has been slowing down, with funds competing to offer catchy names. Some specific sectors are also seeing short-selling behavior, as per specialized ETF monitors.

A pure Bitcoin ETF is still to be approved, but there have been funds based on the performance of blockchain companies. The SEC has also directly refused to allow the term “blockchain” to be mentioned in the title of any fund.

Adding blockchain to attract attention is not exclusive to newly created ETF. Small-scale OTC-traded companies, where renaming is extremely easy, have also added “blockchain” to their name to spark interest.

Fund creators believe the bans on using “blockchain” may lead to misleading names, and attempt to use tickers to signify the involvement with blockchain.

Unfortunately, blockchain ETFs were also deeply hurt by the bear market, as they launched near peak prices around January 2018. The deep losses of BTC prices and other assets meant the funds led to significant loss both in ETF values and in investor interest. But with a renewed spike in BTC prices, a revival of ETFs may be on the cards.

Reading now