The SEC addressed Cryptocurrency ETF’s in a recent publicized letter. Citing the 1940 Investment Company Act the SEC stated concerns related to potential crypcurrency funds as they begin discussions about the topic. According to the SEC,
“The innovative nature of cryptocurrencies and related products, as well as their expected use and utility in our financial markets, means that they are, in many ways, unlike the types of investments that registered funds currently hold in substantial amounts. In light of these considerations, we have, at this time, significant outstanding questions concerning how funds holding substantial amounts of cryptocurrencies and related products would satisfy the requirements of the 1940 Act and its rules.”
"To facilitate the start of our dialogue, we have identified below a number of these questions, and we invite you and any interested sponsors to engage with us in detail on these. While we have identified the questions below, we note that the cryptocurrency markets are developing swiftly. Additional questions may arise from these developments."The main areas of concern listed by the SEC were valuation, liquidity, custody, arbitrage, potential manipulation and risks. Several questions on these topics were listed in the letter specifically. Due to these questions the SEC stated,
"The resolution of many of the questions we have raised in the context of a product seeking to register under the 1940 Act will also be important to the ongoing analysis of filings for exchange-traded products and related changes to exchange listing standards by the Division of Corporation Finance, the Division of Trading and Markets and the Office of the Chief Accountant. In addition, questions concerning what regulatory structure or structures apply to the market for the underlying instrument will be relevant to the requirements of both the 1940 Act and the Securities Exchange Act of 1934, including applicable accounting, audit and reporting implications. We have been and will continue working closely with the other Divisions and Offices as we analyze these significant issues.
The preceding questions have focused on specific requirements of the 1940 Act and its implications for registered offerings of funds intending to hold cryptocurrency or related products. There may be registered offerings under the Securities Act of 1933 by entities holding similar products and pursuing similar investment strategies. Those entities would have to comply with the registration and prospectus disclosure requirements of the Securities Act.
Until the questions identified above 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, and we have asked sponsors that have registration statements filed for such products to withdraw them. In addition, we do not believe that such funds should utilize rule 485(a) under the Securities Act, which allows post-effective amendments to previously effective registration statements for registration of a new series to go effective automatically. If a sponsor were to file a post-effective amendment under rule 485(a) to register a fund that invests substantially in cryptocurrency or related products, we would view that action unfavorably and would consider actions necessary or appropriate to protect Main Street investors, including recommending a stop order to the Commission."From the SEC: https://tinyurl.com/y7cu28hr