Industry Technology

SEC Commissioner: Bitcoin ETF Applicants Should Focus on Liquidity, Custody, Market Surveillance

Nick Chong | October 23, 2018 | 4:05 pm
Juniper
Industry

SEC Commissioner: Bitcoin ETF Applicants Should Focus on Liquidity, Custody, Market Surveillance

Nick Chong | October 23, 2018 | 4:05 pm

Even amid bearish market conditions, the regulatory status of crypto assets remains a hot-button topic, as global governments attempt to discern how to best approach this emerging market.

Leading the charge for fair regulation is arguably the U.S. Securities and Exchange Commission (SEC), which has done its best to protect investors from unwarranted financial risk, while still treating this industry with respect.

SEC Commissioner Stein Talks Crypto

American attorney Kara Stein, who currently serves as an SEC Commissioner, recently sat down with Bloomberg to discuss the regulatory climate surrounding cryptocurrencies.

Bringing up the age-old debate of whether Bitcoin should be classified as a non-correlated asset, legitimate currency, commodity, or security, the Bloomberg host questioned the regulator what the SEC classifies the digital asset as. Approaching how she responded with caution by not giving any conclusive answers, Stein stated:

“Well, we [at the SEC] determine whether it is a security or not and leave whether it’s a currency or not to others… But I think it depends on the form of the product that is being presented because Bitcoin can be, as you already know, backed by blockchain technologies. So I see many folks in the market thinking through how they can use blockchain to make what they do better.”

What Stein seems to be referring to is although Bitcoin has been classified as a non-security on a majority of occasions, some vehicles that involve the cryptocurrency have been labeled securities. Most recently, as reported by NewsBTC, the SEC, coupled with enforcement efforts from the CFTC and FBI, resulted in the shut down of 1Broker, who was reportedly offering “security-based swaps funded with Bitcoins.”

While this by no means indicates that the cryptocurrency is a security, the unfortunate case of 1Broker’s temporary demise reminds startups that the use of Bitcoin for investment products isn’t a get-out-of-jail-free card.

Although Stein made no mention of Ethereum or its regulatory status, which is widely regarded as “up in the air,” it can be assumed that her comments regarding how the status of Bitcoin differs from case-to-case and product-to-product can be logically applied to Ether.

The Bloomberg host went on to ask the question that has been on the minds of cryptocurrency enthusiasts worldwide — is a Bitcoin — or crypto-backed exchange-traded fund (ETF) in the cards?

Again, as if she was walking on hot coals, the Commissioner responded with caution, noting that she doesn’t know the answer to that question as it depends on the “facts and circumstances” of an ETF application. This vague answer prompted the Bloomberg anchor to make another query, asking what concerns the SEC has with a Bitcoin-centric ETF.

Exuding more confidence this time around, the attorney noted:

“At the end of the day, whatever fund presents a concept to us will have to show how they can get accurate valuations, how they make sure that there is physical custody, and how to make sure that there is adequate liquidity, especially in a 40 act fund context, where investors can get the money when they need their money. So we will look at all of those factors and make a decision based on that particular fund and how it will be able to handle those particular requirements.”

Interestingly enough, Stein’s comments mirror the qualms brought up in the SEC’s recent rejection of a handful of crypto-backed ETFs. However, these regulatory issues are rapidly getting resolved. In terms of custody, Fidelity’s recently-launched subsidiary, Fidelity Digital Asset Services, will offer a valued cold storage custody solution, which may satisfy the SEC’s standards.

On the liquidity side of things, many, including NewsBTC’s Joseph Young, have claimed that the arrival of Bakkt’s physically-backed BTC futures in December will facilitate a surge in liquidity, likely quenching the SEC’s thirst for “markets of sufficient size.”

Although the regulator’s concern regarding accurate valuations has yet to be meaningfully addressed by innovators within the cryptosphere, it is apparent that moves are being made to satisfy the SEC’s agenda, which may catalyze the regulator to finally green light a crypto-backed ETF.

Featured image from Shutterstock.
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