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SEC Questions Abound For Proposed Cryptocurrency Financial Products




On Thursday, two prominent trade groups received a letter from the SEC demanding answers about cryptocurrency investment funds.

On January 18, 2018, the director of the US Securities and Exchange Commission's (SEC's) Division of Investment Management, Dalia Blass, issued a letter addressed to the heads of two trade groups: the Investment Company Institute and the Securities Industry and Financial Markets Association. The letter demands answers to no fewer than 31 questions regarding how mutual funds or exchange-traded funds (ETFs) based on bitcoin and other "related assets" – likely meaning other crypto-backed financial products – are priced and safeguarded.

The SEC also asked the trade groups (which represent securities firms, banks, and asset management companies) whether investors truly understand the risks and concerns surrounding allegations that cryptocurrency markets could be manipulated by bad actors.

After providing background information and posing a number of questions regarding valuation, liquidity, custody, ETF arbitrage, and the potential for market manipulation, the SEC plainly stated:

"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."

The SEC comments about crypto-backed financial products, such as bitcoin ETFs, potentially trading on fiat markets aligns with the previous positions taken by the SEC and chair Jay Clayton in response to token offerings. It seems as though traditional financial players are in such a rush to capitalize on cryptocurrency mania, which saw bitcoin's price rise 1,500 percent last year, that they are falling prey to the same "FOMO" that drove the 2017 token offering craze.

The commission's questions will most likely require other entities seeking to list crypto-backed financial products to address its concerns on a case-by-case basis.

Today, the agency published a joint statement with the CFTC on their concerns about the cryptocurrency markets. In February, the agencies will testify before the Senate Banking Committee on cryptocurrency regulation.

Jordan Daniell

Jordan Daniell has a passion for techno-social developments and cultural evolution. In his spare time, he enjoys astronomy, playing the bagpipes, and exploring southern California on foot. Jordan holds value in Ether.

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