Jay Clayton, the chairman of the Securities and Exchange Commission (SEC) took to stage during the Consensus Invest Conference held in Manhattan yesterday to talk about why the commission hasn’t approved a Bitcoin Exchange Traded Fund (ETF) and to clear the air on some regulatory concerns on digital assets.
According to Clayton, not a single applicant has been able to satisfactorily promise to deliver on two of the SEC’s most important concerns when it comes to launching and running an ETF. These concerns involve the custody of digital assets and assurance of lack or price manipulation. The two factors rank highest in regards to protecting investors who would choose to trade ETFs on conventional stock exchanges.
To prevent price manipulation, the SEC requires applicants to provide evidence of appropriate measures taken to offer market surveillance. Current cryptocurrency exchanges do not offer similar assurances on lack of price manipulation that traditional stock exchanges do and this factor may deprive investors of getting a fair assessment of Bitcoin’s price.
“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.
The other bottleneck that is preventing Bitcoin ETF applicants from getting approval is the custody of digital assets. Security is especially a pain point when it comes to the safety of assets stored by cryptocurrency exchanges. Clayton said that,
“We’ve seen some thefts around digital assets that make you scratch your head.”
The safety of digital assets is paramount and the SEC needs to be assured that those assets are safe.
“We care that the assets underlying that ETF has good custody and that they’re not going to disappear.”
A few companies are setting up custody services to provide better safety for institutional investors. Investments firm Fidelity announced recently about its efforts on launching a separate company to handle cryptocurrency custody and trade execution for institutional investors.
The same service is being offered by leading cryptocurrency exchange Coinbase. These show that some of the SEC’s concerns are being tackled and a Bitcoin ETF could be approved soon.