Wall Street’s top regulator on Thursday all but shut the door to approving exchange-traded funds that hold bitcoin and other cryptocurrencies, questioning whether the products could comply with rules meant to protect mom-and-pop investors.
The Securities and Exchange Commission outlined its views in a letter to two Wall Street trade groups whose members envision the profits that could flow from selling exposure to bitcoin through popular investment vehicles such as ETFs and mutual funds. The SEC questioned how bitcoin’s volatility and potential illiquidity would fit with funds that must calculate a fair market price for their portfolio at the end of every trading day and allow investors to easily cash out their shares.
“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,” the SEC’s director of investment management, Dalia Blass, wrote in the letter made public Thursday.
Several ETF issuers have been racing to launch the first bitcoin fund amid a speculative frenzy for digital currencies, but the SEC has so far been skeptical. The agency has also expressed reservations about initial coin offerings, saying that many ICOs, in which a firm raises money from investors in exchange for a new coin, are securities sales that should comply with its investor protection rules.
An expanded version of this report appears on WSJ.com.
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