In July, Sweden’s XBT Provider introduced a Bitcoin exchange-traded note (ETN) to the US market. This week, the US Securities and Exchange Commission (SEC) suspended the ETN for 10 days.
On September 10, the SEC released an official statement regarding its decision to suspend the Bitcoin Tracker One ETN for ten days, until Sep.t 20. The statement, released on the SEC website, explicitly stated that the two ETNs of XBT Provider caused confusion amongst investors.
Essentially, the SEC has said that Bitcoin Tracker One (CXBTF) and Ether Tracker One (CETHF) directly or indirectly misled investors by marketing the two products in a way that did not clearly describe the difference between an ETF and an ETN on digital assets.
The SEC said:
“The Commission temporarily suspended trading in the securities CXBTF and CETHF because of confusion amongst market participants regarding these instruments. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act).”
Why Did the SEC Suspend it?
According to Jake Chervinsky, an enforcement defense & securities litigation attorney at Kobre Kim LLP, the SEC’s suspension of the two ETNs of XBT Provider has no relation to the regulatory state of Bitcoin and ETH, the native cryptocurrency of Ethereum, in the US.
Rather, Chervinsky explained that CXBTF and CETHF failed to provide a lack of current, consistent, and accurate information on their ETNs. It is possible that buyers of the CXBTF and CETHF were misled in the process of investing in cryptocurrencies in the US market, possibly into thinking that the two instruments were ETFs.
“This is a problem with CXBTF and CETHF, not bitcoin or ether. As the full SEC order of suspension explains, the issue is ‘a lack of current, consistent and accurate information’ on these products, such as whether they are ETFs, ETNs, or something else,” Chervinsky said.
While ETNs are similar to ETFs in that investors can still benefit from the price movement of a target asset, stock, or commodity, ETNs do not represent ownership. For instance, when an investor invests in Bitcoin through an ETF, the investor can receive BTC in its actual form from the ETF provider.
With ETNs, investors are investing in structured products issued as senior debt notes that have no insurance and are vulnerable to credit risk.
ETNs can be reliable depending on their providers and the track record of the asset itself. But, it does not offer the same level of protection, insurance, and credit risk mitigation as an ETF.
Hence, for the SEC, if an investor purchases Bitcoin ETNs like CXBTF and CETHT under the assumption that they offer the services of ETFs, it can be a problem. The SEC needs both investors and the ETN provider to acknowledge the difference between an ETF and ETF, to avoid market confusion.
Not a Big Deal
Many investors in the cryptocurrency market have described the extensive reporting on the SEC’s decision to suspend two Bitcoin and Ether ETNs as FUD (fear, uncertainty, and doubt), and it is hard to say it isn’t, as the suspension of CXBTF and CETHT is not significant and certainly not enough to have any sort of impact on their underlying digital assets.
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