TheMerkle SEC Bitcoin ETF

When it comes to initial coin offerings and Bitcoin ETFs, the SEC still has a lot of work ahead. Sorting through all of the filings and projects takes up valuable time. It also allows cryptocurrency enthusiasts to get their hopes up, as no ETFs have been approved at this point. To the contrary, the SEC has asked that all cryptocurrency ETF filings be withdrawn altogether. It is a very disappointing development, but it’s one that most people saw coming from miles away.

No Future for Bitcoin ETFs?

When it comes to Bitcoin ETFs, there are certain risks the SEC must take into account. First of all, there is the lack of regulation and cryptocurrency guidelines in the United States. Without a legal framework in which to operate, it is highly unlikely that any ETF filing will be approved in the near future. This has not prevented companies from trying, mind you, but there is no reason to think any of them will be even remotely successful.

Secondly, cryptocurrency markets are notorious for their price volatility. Although this can be said for any investment vehicle in the world, cryptocurrencies tend to swing up or down by very large amounts. Just this week, the Bitcoin price fell from US$13,000 all the way to US$9,200 and is now back at US$11,775. Such wild swings make it nearly impossible for the SEC to approve exchange-traded funds associated with any of these markets. Even though public interest in cryptocurrencies is on the rise, the volatility will remain a big risk for quite some time to come.

As a result, the SEC has publicly issued a notice to anyone who wishes to file a proposal for a Bitcoin ETF. It notes that the growth of cryptocurrencies and related products has spurred an interest in offering registered funds holding these new digital products. Unfortunately, there are too many investor protection issues to warrant the approval of such investment vehicles. It is not the first time the SEC has given these reasons to reject ETFs, nor will it be the last. It is unfortunate, but no one really expected anything else at this point.

For the time being, this public document touches upon some key aspects of Bitcoin ETFs which need to be clarified. The valuation of such funds is a big problem which will need to be addressed. Every service provider will have to implement policies and procedures in order to value such products, which will not be easy. Moreover, the SEC also raises the potential for “forked” currencies and how they would affect such investment vehicles. These concerns are more than warranted, as hard-forked currencies have seemed to pop up all over the place lately.

There are also concerns regarding liquidity, custody, and arbitrage. Again, all of these topics apply to other investment vehicles as well, but cryptocurrency is a completely different animal in this regard. It is an entirely new form of money which cannot be “filed” under any existing template the SEC may attempt to maintain. As such, an open dialogue between the government agency and industry experts is direly needed. Once all of the issues and pitfalls can be addressed in a proper manner, Bitcoin ETFs may finally be ready for approval. Right now, that is far from the case, for obvious reasons.

It is evident the SEC is not closing the door on Bitcoin ETFs by any means. However, for all the filings this organization receives, none seem to address any of these key concerns. In a way, this may be the first step toward creating a proper guideline framework for all cryptocurrency-related ETFs. There are very specific requirements which need to be addressed, but until that is done in a satisfactory manner, there will be no approval of Bitcoin ETFs whatsoever. At least now everyone knows where everyone stands, which is a step in the right direction.

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