SEC’s Division of Investment Management voices concerns over registered funds investing in cryptocurrencies and cryptocurrency-related products

Abstract

Purpose This paper aims to provide an overview of recent US Securities and Exchange Commission (SEC) Division of Investment Management staff (“Staff”) guidance related to investment funds registered under the Investment Company Act of 1940 that seeks to provide exposure to cryptocurrencies or cryptocurrency-related products. Design/methodology/approach This paper provides analysis regarding the Staff’s view on registered investment companies that intend to invest in cryptocurrencies or cryptocurrency-related products, including an overview of the questions posed by the Staff with respect to registered investment companies that seek to hold cryptocurrencies or cryptocurrency-related products, which are divided into five categories: valuation, liquidity, custody, arbitrage (for exchange-traded funds) and potential manipulation and other risks. Findings The Staff is asking for additional information from industry participants to fully analyze and evaluate registered investment companies that seek to invest in cryptocurrencies. Practical implications The industry should continue to provide information to the Staff with the short-term goal of fostering an open dialogue and with the long-term goal of launching a registered investment company that invests in cryptocurrencies or cryptocurrency-related products. Originality/value This paper provides practical guidance from experienced lawyers of the Investment Company Act and Securities Act.