SEC Chair Pours Cold Water on Digital Currency ETFs

November 27, 2018, 9:43 PM UTC

Slumping cryptocurrency markets won’t be getting a boost from the Securities and Exchange Commission anytime soon. On Tuesday, SEC Chair Jay Clayton expressed fresh concerns about digital currency ETFs, citing fears over theft and market manipulation.

Speaking at the Consensus Invest summit in New York, Clayton said he will only support ETFs—financial products that track assets such as gold or baskets of shares—in which the only risk to investors is related to the value of the underlying asset.

The SEC has repeatedly rejected bids to list a bitcoin-ETF filed by various applicants, including the Winkelvoss twins of Facebook fame. Clayton’s renewed skepticism is thus not surprising, but will still prove discouraging for crypto boosters who have long believed an ETF will help push digital currency into the mainstream.

“When you see an asset trade on Nasdaq or NYSE, there’s a great deal of surveillance preventing you and I from teaming up and pretending we’re decentralized. Those sort of safeguards don’t exist in a lot of markets where digital currencies trade,” said Clayton.

He added that the underlying assets in existing ETFs are not at risk of “theft or disappearance”—implying he does not believe this is the case for proposed digital currency ETFs, notwithstanding the crypto industry’s recent focus on secure custody offerings.

Clayton also addressed the issue of when digital tokens are securities, reiterating the agency’s earlier assertion that the question turns in large part on whether the token is “decentralized.”

“When a store of value becomes truly decentralized [with] not one person or group of people controlling its supply…we’ve said that’s distributed,” Clayton said, adding, “It does very much have to do with control and ability to direct the enterprise.”

When pressed whether this definition made the token XRP—currently the second most valuable digital currency—a security, Clayton declined to answer, following an SEC convention of not commenting on individual cases over which the agency has not publicly ruled.

Clayton also spoke positively about blockchain technology in general, saying it has “incredible promise” for a variety of industries, including finance and shipping.