The Securities and Exchange Commission (SEC) has yet to approve a bitcoin-based ETF, and the regulator continues to harbor concerns about the risks of investments related to the cryptocurrency.
The SEC Division of Investment Management released a roughly 1,100-word public statement on Tuesday expressing caution and skepticism about bitcoin investments.
‘Among other things, investors should understand that bitcoin, including gaining exposure through the bitcoin futures market, is a highly speculative investment,’ the SEC statement said. ‘As such, investors should consider the volatility of bitcoin and the bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying bitcoin market.’
The new chair of the SEC, Gary Gensler, had been seen by some observers as more supportive of cryptocurrency as an investment than his predecessors. In a recent interview with CNBC, however, Gensler called bitcoin ‘highly volatile’ and said he didn’t ‘think there’s that investor protection for bitcoin investing at this point in time.’
The SEC statement also cited the inability of ETFs to ‘prevent additional investor assets from coming into the ETF if the ETF becomes too large or dominant in the market, or if the liquidity in the market starts to wane.’
‘The SEC continues to have concerns about fraud and liquidity for bitcoin-related investments inside a fund,’ said Todd Rosenbluth, head of ETF and mutual fund research for CFRA. ‘But they also highlighted added risks for an ETF because it could not close to new investors like a mutual fund and an ETF could become too big to manage the risks. We think this limits the likelihood of one of the many bitcoin ETFs from being approved for trading in 2021.’
Though several entities have filed for permission to operate a crypto ETF, the SEC has not yet approved any. Earlier this week, Dave Nadig, the chief investment officer at ETF Trends, told Bloomberg there was ‘zero chance’ any current bitcoin filing ‘goes through with no modifications whatsoever.’
For now, investors looking for bitcoin exposure have had to content themselves with trusts, such as the Grayscale Bitcoin Trust.
SEC staff also acknowledged the interest of some mutual funds to invest in bitcoin futures and said it would closely monitor such investments. That scrutiny will include analysis of the bitcoin futures’ market’s liquidity and investor volume and assessing the ‘potential for fraud or manipulation in the underlying bitcoin markets.’