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No approval signs for ETFs by SEC, Director says still some questions unanswered

Feb 05, 2018 Posted /  2462 Views

No approval signs for ETFs by SEC, Director says still some questions unanswered

The Securities and Exchange Commission has been delaying the ETFs from last some time now. Dalia Blass, a director at the Securities and Exchange Commission, who watches over the US investment industry wrote to two trade groups in a letter last week-

“There are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors,”  

Ms Blass had outlined more than 30 questions before the SEC could itself answer the approval question pertaining to mutual funds and exchange-traded funds that invest in bitcoins and other cryptocurrencies.  In a report of Financial Times, who further quoted Ms Blass saying that the agency will not answer any applications in any substantiation until the executives themselves get convincing answers.  

“Until the questions . . . can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products.”

SEC had been receiving many applications lately from ETF providers who had been waiting to launch funds tracking cryptocurrencies. Ms Blass wrote the letter in response to the pique the agency had been getting. The surging prices of virtual currencies like bitcoin and Ripple last year and the launch of derivatives markets by two exchanges also gave hope to ETF. The executives of ETF were assuming that the digital assets had become convincingly mainstream and soon their products would be approved.

However, the cryptocurrency market has seen a great downfall lately and the prices of Bitcoin have come crashing down in comparison to its December highs. The meteoric rise of Bitcoin has attracted the speculative trading who hope to multiply their investments in short order.  There are about 15mln bitcoins in circulation right now with a price per unit of $8,300 and the market capitalization at present stands at $140 bln.

While the SEC’s statement has killed off the chance of US funds launching in the coming months, cryptocurrency enthusiasts believe it is only a matter of time before the market develops. They hope that, as the asset class matures, the hype surrounding bitcoin will transfer to its shadow ETF market.

This is being driven by “the fear of missing out,” says Sylvia Jablonski, a managing director at Direxion, which applied for five bitcoin ETFs, some of which would have used leverage to amplify the price movements.

“Investors are enamoured with the price swings in bitcoin . . . but they cannot go out and buy bitcoin for their clients. This would be a way to have exposure to the asset class.”

Ms Jablonski says many of her more sophisticated customers — including hedge funds, investment advisers and institutional investors — would like to invest in cryptocurrencies as a way to make tactical and technical trades. As a fiercely volatile asset class, Bitcoin attracts the high-risk traders as it allows them to make big bets on its capability to rise or fall.

It will be interesting to see how the traders will answer these questions in the coming time and if SEC will somehow approve the ETFs.

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Tags: investor protection Cryptocurrency Market Exchange Commission

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