US SEC Chair Sets Prerequisites Before Approving Bitcoin ETF

Nov 29, 2018 at 0:09

US Securities and Exchange Commission (SEC) chairman Jay Clayton enlisted areas of concern which he said crypto exchange traded funds (ETFs) should first address before he can be “comfortable” approving them.

On top of this list is the lack of market oversight.

“What investors expect is that trading in the commodity that underlies that ETF makes sense and is free from the risk of manipulation,” Clayton said at the Consensus Invest Conference in Manhattan.

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“It’s an issue that needs to be addressed before I would be comfortable,” he said.

Activities of stock exchanges are regularly monitored so as to prevent abusive and manipulative activity on the exchanges.

“Those kinds of safeguards do not exist currently in all of the exchange venues where digital currencies trade,” the SEC chair added.

The agency has denied a number of applications for a crypto ETF, citing risks of fraud and market manipulation, thus, giving rise to the challenge of ensuring protection among investors.

Another concern for Clayton is the hack incidents, for which the crypto space is notorious.

“We’ve seen some thefts around digital assets that make you scratch your head,” Clayton said. “We care that the assets underlying that ETF have good custody, and that they’re not going to disappear.”

To note, some crypto exchange platforms have already working on resolving the loopholes cited by Clayton.

Last October, Fidelity unveiled its plan to put up a separate company that will handle crypto custody and trade execution for institutional investors.

Some firms like Coinbase, Gemini, BitGo, Ledger and ItBit have said they are working on their solutions that pose similar as Fidelity’s.

Meanwhile, Nomura had said it may offer crypto custody while Goldman Sachs as well as Northern Trust are mulling over custodial services.

Despite these efforts, Clayton said custody offerings still “need to be improved and hardened.”

The SEC chief also reminded digital token issuers to operate as though they are registered with the SEC as they may likely be subject to the regulator’s purview.

“You should start with the assumption that you’re starting with a securities offering,” Clayton said.

The SEC have ruled that bitcoin and ether are commodities while all other cryptocurrencies are still seen by the SEC as securities which require registration with the agency.

The regulator has penalized a number of crypto projects that failed to register new coin offerings.