Road to bitcoin ETF paved with red tape

NEW YORK (Reuters) – The going is getting tough for U.S. companies hoping to win the race to bring a bitcoin exchange-traded fund to market.

Bitcoin’s 1,500 percent surge last year has stoked investor demand for any product with exposure to the red-hot asset. A host of companies are jostling to launch exchange-traded funds which would open up the cryptocurrency to a broad retail market.

But regulators are asking tough questions, and five fund managers this week shelved plans to launch ETFs based on bitcoin futures, citing concerns from the U.S. Securities and Exchanges Commission.

“We can expect the SEC to be increasingly watchful over any companies involved in bitcoin activity,” said Marc Butler, a director at compliance management firm Intelligize. “Investors should be warned. If it’s too good to be true, then it probably is.”

The SEC has pending applications for at least 14 different bitcoin ETFs or related products, regulatory filings show.

A handful of funds have been knocked back. The SEC in March denied a request to list an ETF from investors Cameron and Tyler Winklevoss, owners of the Gemini bitcoin exchange.

The Winklevoss fund is seeking to invest in bitcoin directly. Other fund firms staked their hopes on recently launched U.S.-listed bitcoin futures contracts, which promised a more stable base for ETFs than the largely unregulated virtual currency spot market.

But on Monday, Rafferty Asset Management LLC, which manages the Direxion brand and hopes to list leveraged funds that would double bitcoin’s daily price moves, disclosed that the SEC was concerned about the “liquidity and valuation” of bitcoin futures contracts. It said the regulator told it to withdraw its application until it could address those issues.

On Tuesday, ProShare Capital Management LLC, Van Eck Associates Corp and First Trust Advisors LP said in filings that SEC staff asked them to shelve plans for bitcoin ETFs.

Direxion, ProShares, VanEck and the SEC declined to comment. First Trust did not immediately respond to an email.

Bitcoin BTC=BTSP was last down 1.5 percent at $14,779 on the Luxembourg-based Bitstamp exchange.

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