SEC Halts Registration of Cryptocurrency Mutual Funds, Calling for Dialogue Regarding Valuation, Liquidity, Custody, Arbitrage and Manipulation Risk

Dalia Blass, Director of the SEC Division of Investment Management, has issued a staff letter to the Securities Industry and Financial Markets Association and the Investment Company Institute outlining her Division’s concerns about funds that invest in cryptocurrencies. The letter focuses on registered funds that desire to invest in cryptocurrencies and indicates that, for the time being, the SEC will not register funds that “intend to invest substantially in cryptocurrency and related products.” It also sheds light on the SEC’s general view of this evolving asset class, which may inform its perspective on private fund investments involving cryptocurrencies. This article summarizes the letter and its key takeaways for managers considering launching cryptocurrency funds, as well as any industry participant contemplating investing in cryptocurrencies. For more on investment in cryptocurrencies, see “Opportunities and Challenges Posed by Three Asset Classes on the Frontier of Alternative Investing: Blockchain, Cannabis and Litigation Finance” (Dec. 14, 2017). See also our three-part series on blockchain and the private funds industry: “Basics of the Technology and How the Financial Sector Is Currently Employing It” (Jun. 1, 2017); “Potential Uses by Private Funds and Service Providers” (Jun. 8, 2017); and “Potential Impediments to Its Eventual Adoption” (Jun. 15, 2017).

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