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SEC Slams The Brakes On Bitcoin ETF Products And Crypto Mutual Funds

Reading Time: 2 minutes by on January 14, 2018 Bitcoin, Commentary, News, Regulation
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In a move that is sure to raise many eyebrows in the investor’s community, the United States Securities and Exchange Commission (SEC) has requested several exchange-traded fund (ETF) providers to put their plans to create bitcoin ETF products on halt.

What Prompted the SEC Move?

Not only that, but the SEC has also slammed the brakes on two cryptocurrency mutual funds, leaving doubt that Washington is keen on slowing Bitcoin’s wild run.

Apparently, the regulatory body is worried about the possible adverse consequences of tying frequently traded ETFs to potentially illiquid assets. This is understandable considering the difficulties in accurately evaluating funds at a time when crypto prices are wildly fluctuating almost on a daily basis.

While the SEC’s pushback is understandable, many financial firms weren’t expecting it. In fact, speculations were rife that the CBOE Global Markets Inc.’s approval of bitcoin futures trading would soon be followed by the emergence of a slew of bitcoin ETFs and mutual funds.

Many hoped that it would attract hordes of first-time investors, essentially helping the prices of bitcoin and other virtual coins surge even higher.

How ETF Providers are Reacting

Some ETF providers including Direxion Shares ETF Trust, ProShares Trust, and Exchange Listed Funds Trust filed to come up with their exchange-traded products last month. Interestingly, however, none of those proposed offerings would hold bitcoin directly.

Instead, their price changes would have been based on the fluctuations in bitcoin futures, a market still in infancy.

Notably, Direxion and ELF withdrew their proposal via a letter earlier this week citing SEC’s recent feedback:

“On a call with the Staff on January 5, 2018, the Staff expressed concerns regarding the liquidity and valuation of the underlying instruments in which the Fund intends to primarily invest and requested that the Trust withdraw the Amendment until such time as these concerns are resolved. In response to the Staff’s request, the Trust respectfully requests withdrawal of the Amendment.”

Pro Share’s withdrawal letter dated Jan 9 cited pretty much the same reason:

“This request for withdrawal is being made in response to a request from the staff.” 

The move by the SEC has created an unforeseen obstacle in front of bitcoin ETF proponents worldwide. In the past, the SEC refused to review bitcoin ETF applications for trading bitcoin futures citing that the contracts didn’t exist. And as readers can assume, now the process of enlisting exchange-traded crypto funds has become even murkier.

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