US regulator raises alarm over bitcoin investments

Bitcoin's 1,500 per cent surge last year stoked investor demand for any product with exposure to the red-hot asset.
Bitcoin's 1,500 per cent surge last year stoked investor demand for any product with exposure to the red-hot asset.PHOTO: REUTERS

WASHINGTON • The United States securities regulator on Thursday raised alarm about the safety of bitcoin-themed investments, telling the fund industry it wants answers to its concerns before endorsing over a dozen proposed products based on cryptocurrencies.

A top division chief at the US Securities and Exchange Commission (SEC) detailed its concerns about the wild-trading investment in a letter to two trade groups representing fund managers who unleashed a range of proposals for funds holding bitcoin or related assets.

The SEC's division of investment management demanded answers to at least 31 detailed questions about how mutual funds or exchange-traded funds (ETFs) based on bitcoin would store, safeguard and price that asset. It also asked if investors can understand the risks and how to address concerns that bitcoin markets could be manipulated.

"There are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to investors," said the letter signed by the SEC's director of the investment management division Dalia Blass.

Bitcoin's 1,500 per cent surge last year stoked investor demand for any product with exposure to the red-hot asset. A host of firms are jostling to launch ETFs that would open up the cryptocurrency to a broad retail market.

The SEC last March denied a request to list an ETF from investors Cameron and Tyler Winklevoss, owners of the Gemini bitcoin exchange. The Winklevoss fund is seeking to invest in bitcoin directly.

Other fund firms staked their hopes on recently launched US-listed bitcoin futures contracts, which promised a more stable base for ETFs than the largely unregulated virtual currency spot market. Many of those proposals were withdrawn last week at the request of the SEC.

REUTERS

A version of this article appeared in the print edition of The Straits Times on January 20, 2018, with the headline 'US regulator raises alarm over bitcoin investments'. Print Edition | Subscribe