A staff letter was released by the SEC (US Securities and Exchange Commission) on 18 January, and it was intended for a couple of Wall Street trade groups who were contemplating on opening EFTs along with mutual funds based on BTC (Bitcoin). The letter asserts that those businesses which are offering investment products based on cryptocurrency are still unable to abide by the regulations of the SEC.
The investment management director of SEC, Dalia Blass mentioned in the letter that they highly value the fact that those products which were related to the proponents of cryptocurrencies have found an array of probable advantages. Moreover, they comprehend that various issues have been raised by the critics of cryptocurrencies including trading, transparency of information, valuation, as well as other things which were associated with the characteristics of the underlying resources.
While taking all these things into consideration, right now they have several crucial outstanding queries relating to how the specifications of the 1940 Act along with its regulations are going to be fulfilled by the funds holding a considerable amount of cryptocurrencies as well as other relevant products.
The 1940 Investment Company Act is responsible for regulating all mutual funds, hedge funds, personal equity funds, as well as holding organizations.
Several queries have been mentioned in the letter that, according to the SEC, ought to be addressed so that they can think about encouraging the concept of a cryptocurrency-based fund. Blass also adds that it will be extremely challenging to make a proper valuation of cryptocurrencies at the end of every day because of the character of Blockchain protocol and also the unpredictability of the market:
For instance, how would it be possible for them to handle the situation once different cryptocurrencies would be generated with potentially different rates as a result of the divergence of a cryptocurrency blockchain into different paths.
As per the 1940 Act, it was obligatory for a fund to enable its investors to liquidate their holdings easily at the conclusion of every single day, and this has led the SEC to visualize liquidity as a possible issue.
The threat of market manipulation as well as scams already mentioned in an SEC bulletin released in August 2017 relating to ICO (initial Coin Offerings), is repeated once more in this notice in connection with ETF (exchange-traded funds).
A couple of Bitcoin-related ETF proposals were requested by the SEC to be withdrawn in the early part of January 2018, citing the same issues over valuation and liquidity which were underlined in the latest letter.
At present, the final position of SEC regarding the prospect of Bitcoin-based funds is not favorable. Blass writes that until the queries which were mentioned in the letter are satisfactorily resolved, they do not believe in the fact that the fund sponsors should commence the registration of funds intended to be spent significantly in products such as cryptocurrency, and sponsors having registration statements registered for these types of products have been requested by them to be withdrawn.
