The SEC Division of Investment Management (the "Division") advised funds that are investing significantly in cryptocurrency not to seek to register their securities or otherwise to sell securities in a public offering. In a staff letter sent to the Investment Company Institute and SIFMA, Division Director Dalia Blass, stated that sponsors should withdraw any registration statements that have been filed for these products, and explained that the Division does not believe that they should use Securities Act Rule 485(a) to file "post-effective amendments to previously effective registration statements for registration of a new series to go effective automatically." If a sponsor elects to do so, Director Blass said that the Division would consider recommending a stop order or taking other action.
In explaining this decision, the Division highlighted the recent remarks of SEC Chair Jay Clayton saying that "concerns have been raised that cryptocurrency markets, as they are currently operating, feature substantially less investor protection than traditional securities markets, with correspondingly greater opportunities for fraud and manipulation." In the letter, Director Blass said that there are too many unanswered questions to allow for registration of such cryptocurrency funds. In particular, the letter identified five areas of concern regarding cryptocurrency-related products:
- ability to appropriately value such products;
- ability to meet liquidity requirements;
- ability to maintain custody of holdings and satisfy safekeeping obligations;
- possible exposure to arbitrage; and
- susceptibility to market manipulation.
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