The US securities regulator on Thursday raised alarm about the safety of bitcoin-themed investments, telling the fund industry that they want answers to their concerns before endorsing more than a dozen proposed products based on cryptocurrencies.
A top division chief at the US Securities and Exchange Commission (SEC) detailed the agency’s concerns about the wild-trading investment in a letter to two trade groups representing fund managers who unleashed a range of proposals for funds holding bitcoin or related assets.
The SEC’s division of investment management demanded answers to at least 31 detailed questions about how mutual funds or exchange-traded funds (ETFs) based on bitcoin would store, safeguard, and price that asset.
They also asked whether investors can understand the risks and how to address concerns that bitcoin markets could be manipulated.
“There are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to investors,” said the letter signed by Dalia Blass, the SEC’s director of the division of investment management.
Bitcoin’s 1,500 percent surge last year stoked investor demand for any product with exposure to the red-hot asset. A host of companies are jostling to launch ETFs that would open up the cryptocurrency to a broad retail market.
The SEC in March refused to list an ETF from investors Cameron and Tyler Winklevoss, owners of the Gemini bitcoin exchange.
The Winklevoss fund is seeking to invest in bitcoin directly. Other fund firms staked their hopes on recently launched US-listed bitcoin futures contracts, which promised a more stable base for ETFs than the largely unregulated virtual currency spot market. Many of those proposals were withdrawn last week at the request of the SEC.
Jeremy Senderowicz, a lawyer who represented one proposal for a cryptocurrency product before the SEC, said that the SEC statement is a “really big deal” by making public these concerns that fund managers would have had to address on a case-by-case basis behind the scenes.
“It shows that they’re going to have to take some time to consider the industry’s responses before they change their minds on it,” Dechert LLP partner Senderowicz said. “It gives a template for how to get to a yes.”
Meanwhile, France and Germany on Thursday said they plan to make a joint proposal on regulating bitcoin at a meeting of finance ministers from the G20 countries in March.
“We have the same concerns and we share the goal of regulating bitcoin,” French Minister of the Economy and Finance Bruno Le Maire said at a joint news conference with his German counterpart Peter Altmaier.
Le Maire has tasked a former deputy governor of the Bank of France to come up with proposals.
“These proposals on regulation will be submitted as a joint French-German position to our G20 counterparts” at their mid-March meeting in Buenos Aires, Le Maire said.
“We have a responsibility to our citizens to explain the risks and reduce the risks by regulations which are needed,” Altmaier said.
Their promise to develop regulations came a day after a sharp drop in the value of bitcoin, which fell through the US$10,000 level for the first time since November last year after authorities in China and South Korea cracked down on cryptocurrencies.
Additional reporting by AFP
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