The SEC says that funds based on cryptocurrencies are not ready for regulation
The US Securities and Exchange Commission ( SEC ) issued a personnel letter on January 18, addressed to two Wall Street trading groups that are interested in opening ETFs and Bitcoin-based mutual funds (BTCs) . The letter hypothesizes that companies that offer investment products based on cryptocurrency do not yet have the capacity to comply with SEC regulations.Dalia Blass, the director of the SEC, of investment management, wrote in the letter:
"We appreciate that the defenders of cryptocurrencies and related products have identified a range of potential benefits. We are also aware that critics of cryptocurrencies have raised various concerns regarding the transparency of information, trade, valuation and other matters related to the nature of the underlying assets.In light of these considerations, at this time we have outstanding important questions regarding how funds that maintain substantial amounts of products related to cryptocurrencies would satisfy the requirements of the 1940 Act and its regulations. "
The Investment Companies Act of 1940 is the origin of the regulation for all mutual funds, fixed capital funds, hedge funds, private equity funds and holding companies.The letter contains questions that the SEC considers should be answered to consider supporting the idea of a cryptocurrency-based fund. Blass writes that the valuation of cryptocurrency portfolios at the end of each day will be difficult, due to the volatility of the market and the nature of the Blockchain protocol :
"For example, how would they cope when the blockchain for a cryptocurrency diverges into different routes (ie, 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, the fund must be able to allow its investors to easily liquidate their amount at the end of each day.The risk of fraud and manipulation , of the market, already mentioned in the SEC's bulletin of August 2017 in relation to the Initial Currency Offers (ICO) , is repeated again in this letter, in relation to the Investment Funds (ETF) .At the beginning of January 2018, the SEC had requested that the proposals of two ETFs related to Bitcoin be withdrawn , citing the same concerns about liquidity and the valuation highlighted in the most recent letter.Currently, the final position of the SEC on the possibility of funds based on Bitcoin is unfavorable. Until the questions posed in the letter are "addressed satisfactorily" , Blass writes:
"We do not believe that it is appropriate for the fund sponsors to initiate the registration of funds that intend to substantially invest in cryptocurrencies and related products, and we have asked the sponsors who have submitted the registration declarations of said products to withdraw them. "