Cboe Calls on SEC to Allow ETFs
The Cboe exchange has urged US regulators to allow cryptocurrency-based exchange traded funds (ETFs), arguing that despite the SEC’s concerns, Bitcoin ETFs are little different from existing commodity-based funds.
The arrival of ETFs is eagerly awaited in the cryptocurrency space, and widely expected to be a tipping point in the development of crypto assets into a truly mainstream financial product. After Bitcoin futures contracts were launched on the CME and Cboe last year many expected ETFs to quickly follow. However, the SEC has lingering concerns, and more than a dozen proposed ETFs have been rejected or put on hold, including four put forward by the Cboe.
These concerns were outlined in January in a staff letter entitled, “Engaging on Fund Innovation and Cryptocurrency-related Holdings”. Though the SEC declare themselves “ready to engage in dialogue with sponsors regarding the potential development of these funds (ETFs)”, they cite “significant investor protection issues” that must be resolved first.
In brief the SEC is worried about the disjointed nature of the markets and the potential for price manipulation. ETFs must be valued daily to create the fund’s Net Asset Value (NAV), and the SEC is unconvinced that there is sufficient market volume to enable consensus valuations.
Then there is also the special nature of the underlying asset. “How would they address when the blockchain for a cryptocurrency diverges into different paths (i.e., a “fork”)?”, the SEC asks, and how “would funds recognize such information in their NAV?
The Cboe have now responded with a letter of its own, signed by exchange president Chris Concannon. After first commending the SEC for “clearly laying out potential concerns associated with cryptocurrency-related holdings in funds” it takes the opportunity to “address certain of these concerns”.
Stating that “each Cryptocurrency Fund and underlying cryptocurrency-related holdings should be evaluated on a case by case basis” the letter argues that the “vast majority of these concerns”, i.e. those relating to “valuation, liquidity, custody, arbitrage, and manipulation”, can be “addressed within the existing framework for commodity-related funds”.
For those features particular to cryptocurrencies, like forks and airdrops, these “can easily be accommodated for with proper policies and procedures in place”, as was the case for the Bitcoin futures contracts.
Image From Shutterstock