Many investors have heard of cryptocurrencies and bitcoin, and behind the new development is the blockchain technology that has made it all happen. As companies look for new ways to employ blockchains, exchange traded fund investors can also capture the growth potential through a targeted investment strategy. The U.S. Securities and Exchange Commission ‘SEC’ in a press release this week stated the rejection of Bitcoin ETF proposal rejected filed by the Winklevoss brothers which is noticeably becoming a hot topic of discussion even among the SEC officials itself.
There are a series of questions arising among the crypto community related to SEC and Bitcoin ETF proposal. ETF also called Exchange Traded Funds is a kind of investment fund that is tied to the price of an underlying asset — a commodity, an index, bonds, or an assets — like an index fund and is traded on exchanges, available to both retail and institutional investors. The SEC is the regulatory authority for ETF. As seen earlier, the SEC is denying the ETF proposals, here are a few reasons, the regulators see as drawbacks related to cryptocurrencies and the blockchain technology.
Security Related Issues
The major drawback and the focus of discussion among the lawmakers is related to the security issues that cryptocurrencies lag. As seen from past, even the major exchanges were hacked and lost huge amount of funds globally. The Hack of Mt. Gox, Coinbase, Coinrail, Bithumb etc state a direct efficiency of digital assets. Even in a previous hearing of the Winklevoss brothers ETF proposal the SEC officials denied their proposal mentioning:
“The Bitcoin ETF proposal by Winklevoss brothers does not meet standards of protecting investors and the public interest.”
Market Manipulation Related Issues
The second major drawback is related to the vulnerability in prices. The crypto market’s are prone to sharp rise and sudden fall in prices and seen earlier too which according to the lawmakers is the characteristic of a fake market. This scenario is market manipulation can be seen from the sudden rise of cryptocurrencies to a price hike of $20,000 USD back in year 2017 and sharp fall to $4000 USD in year 2018 where the ‘Whales’ were blamed for this. Even recent weeks ago, a reputed global crypto exchanges Coinbase was blamed for manipulating with the prices of Bitcoin Cash ‘BCH’ just after the company announced its official support in a press release.
Exact Valuation Of Digital Assets
Director of the Division of Investment Management at SEC ‘Dalia Blass’ this year raised concerns around the ability of a digital asset-backed ETF to be valued at the end of each business day, a requirement of an ETF. “Appropriate valuation is important because, among other things, it determines fund performance, what investors pay for mutual funds and what authorized participants pay for ETFs. The cryptocurrencies trading data for each day is required for the follow up of this proposal and seems to be impossible at current time till unified regulations for the cryptocurrencies are developed along with its global acceptance.
Even there are many pending Bitcoin ETF related proposals still to be evaluated by SEC.After the last rejection of ETF by SEC in this month, the market took the news negatively and the price of cryptocurrencies fell sharply, though it jumped back to the green again in no time. The Community is keeping an eye for September for the SEC to come up with other proposals till their next hearing.