The US Securities and Exchange Commission (SEC) has turned down plans by members of two Wall Street trade groups to set up exchange-traded funds (ETFs) for Bitcoin (EXANTE: Bitcoin) and other cryptocurrencies, The Wall Street Journal reported.
In a letter to the two firms - the Investment Company Institute and the Asset Management Group - the regulator raised alarm about the safety of Bitcoin-themed investments, telling the fund industry they want answers to their concerns before endorsing more than a dozen proposed products based on cryptocurrencies.
"There are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to investors," said the letter signed by Dalia Blass, the SEC's director of the division of investment management.
The letter outlines the questions that the SEC believes must be answered in order for them to consider supporting the idea of a cryptocurrency-based fund. Blass writes that the valuation of crypto portfolios at the end of each day will be difficult due to the volatility of the market and the nature of blockchain protocol
“For example, how would they [the funds’ accounting and valuation policies] address when the blockchain for a cryptocurrency diverges into different paths (i.e., a “fork”), which could result in different cryptocurrencies with potentially different prices?”
The SEC also sees liquidity as a potential problem since, according to the 1940 Act, a fund must be able to allow its investors to easily liquidate their holdings at the end of each day.
In early January 2018, the SEC had asked two Bitcoin-related ETF proposals to be withdrawn, citing the same concerns over liquidity and valuation underlined in the most recent letter.
The SEC in March denied a request to list an ETF from investors Cameron and Tyler Winklevoss, owners of the Gemini Bitcoin exchange.