Custody issues top SEC’s concerns over Bitcoin ETFs

The issues raised by the US securities regulator focused largely on investor protection.

By Jonathan Watkins

A lack of custodians providing services for cryptocurrencies is one of the main reasons behind US regulators quashing applications to launch Bitcoin ETFs.

The Securities and Exchange Commission (SEC) issued a letter this week asking for firms to withdraw requests to launch the products until multiple issues had been resolved.

The SEC’s concerns focused largely on investor protection issues.

“To the extent a fund plans to hold cryptocurrency directly, how would it satisfy the custody requirements of the 1940 Act and relevant rules?” the SEC asked in a letter to the Investment Company Institute and Securities Industry and Financial Markets Association.

“In addition, how would a fund intend to validate existence, exclusive ownership and software functionality of private cryptocurrency keys and other ownership records?”

The regulator also raised issues around cyber security and settlement.

The launch of Bitcoin ETFs were a natural progression following the introduction of futures on the cryptocurrency, launched by CME and Cboe Global Markets last month.

“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,” the SEC added to the two industry bodies.

“While we have identified the questions below, we note that the cryptocurrency markets are developing swiftly.”

 

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