SEC Staff Voices Concerns on Cryptocurrency ETFs

The staff in the SEC’s Division of Investment Management raised concerns about cryptocurrency Exchange Traded Funds (ETFs) and other investment funds in a letter sent to two Wall Street trade groups. The letter indicates that “the growth in cryptocurrencies and cryptocurrency-related products has attracted significant attention, and we have seen interest among sponsors in offering registered funds that would hold these new digital products. As we have in the past, the Division stands ready to engage in dialogue with sponsors regarding the potential development of these funds. We believe, however, that there are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors.”

Risks of Cryptocurrency ETFs

The letter goes on to detail concerns with cryptocurrency ETFs and investment funds in several areas, including:

  • Valuation;
  • Liquidity;
  • Custody;
  • Arbitrage; and
  • Potential manipulation and other risks.

The SEC staff indicated that at this time it has “significant outstanding questions concerning how funds holding substantial amounts of cryptocurrencies and related products would satisfy the requirements of the 1940 Act and its rules.”

A copy of the letter is available at: https://www.sec.gov/divisions/investment/noaction/2018/cryptocurrency-011818.htm

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CCH ARM Editorial

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