An SEC statement on cryptocurrency released earlier today that has effectively put a freeze on cryptocurrency futures trading.
Joint statements were released today from both the Securities Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) that may have big implications for the future of currencies like bitcoin. The cryptocurrencies have found themselves in hot water as of late, as financial organizations wizen up and start to take a look at the effects that such a new and unprecedented currency may have on the worldwide investment scene. The SEC statement on cryptocurrency came shortly after several crypto-based exchange-traded futures (ETFs) were withdrawn at the encouragement of the organization.
Gizmodo reports that the SEC statement on cryptocurrency concerns over 30 “significant outstanding questions concerning how funds holding substantial amounts of cryptocurrencies and related products would satisfy the requirements of the 1940 Act and its rules.” Both documents are extremely technical, but they essentially boil down to concerns that the current cryptocurrency scene doesn’t have adequate investor protections and sufficient liquidity, as well as shedding light on the problem of accounting for market manipulation.
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The introduction of increased regulation as suggested by the SEC statement on cryptocurrency may spell trouble for these newcomers to the investment scene, as much of the appeal behind these options are the lack of regulation bogging down trading on a day-to-day basis. However, considering that the market cap for cryptocurrencies is currently in the hundreds of billions, the time that currencies like Bitcoin have spent skating by underneath the radar may be coming to an end.
SEC Statement on Cryptocurrency
One of the primary concerns of the SEC statement on cryptocurrency is the risk that these investment opportunities pose to amateur investors that see currencies like Bitcoin as an opportunity to get rich quickly. In truth, cryptocurrencies are more volatile and it’s definitely possible to lose a lot of money very quickly – as evidenced by the massive crash that happened in the market at the beginning of this year.
The SEC statement on cryptocurrency opens, saying “As you know, the U.S. investment fund market is one of the most robust, varied and successful markets for investment products in the world…This commitment is especially important because many of America’s Main Street investors rely on registered funds to help them build toward education, retirement and other important goals.”
After that comes a statement that effectively kills all cryptocurrency futures trading, much to the chagrin of industry enthusiasts.
“Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products, and we have asked sponsors that have registration statements filed for such products to withdraw them.”
CTFC Statement On Cryptocurrency
The CTFC letter is much shorter than the SEC statement on cryptocurrency, but essentially says something very similar regarding the issues around these uncharted investment waters, while also committing to further investigate fraud within the cryptocurrency scene.
“When market participants engage in fraud under the guise of offering digital instruments – whether characterized as virtual currencies, coins, tokens, or the like – the SEC and the CFTC will look beyond form, examine the substance of the activity and prosecute violations of the federal securities and commodities laws. The Divisions of Enforcement for the SEC and CFTC will continue to address violations and to bring actions to stop and prevent fraud in the offer and sale of digital instruments.”
As Bitcoin starts to be treated more and more like a traditional investment, many are wondering whether it has the fortitude to withstand such regulation. With the value of many currencies already in a downward spiral, this damning SEC statement on cryptocurrency may definitely make it harder for them to recover.