SEC says bitcoin funds raise ‘investor protection issues’

DEMANDS ANSWERS

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 per cent surge last year stoked investor demand for any product with exposure to the red-hot asset. A host of companies are jostling to launch exchange-traded funds which would open up the cryptocurrency to a broad retail market.

The SEC in March denied a request 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 U.S.-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 Many of those proposals were withdrawn last week at the request of the SEC.

Bitcoin was last down a fraction of a per cent for the day at $11,228 on the Bitstamp exchange, but it has tumbled more than 40 per cent from its peak in December.

Jeremy Senderowicz, a lawyer who represented one proposal for a cryptocurrency product before the SEC, said the SEC statement is a “really big deal” by making public concerns that fund managers would have had to address on a case-bycase 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,” said Senderowicz, a partner at Dechert LLP.

“It gives a template for how to get to a yes.”