The U.S. Securities and Exchange Commission (SEC) has halted trading of two foreign cryptocurrency investment products, including one that investors commonly referred to as the “Swedish bitcoin ETF.”
SEC Leashes Bitcoin & Ethereum Investment Products
The SEC announced the temporary trading suspension on Sunday, while U.S. markets were closed for the weekend, claiming that “there is a lack of current, consistent and accurate information concerning” the funds, Bitcoin Tracker One (OTC: CXBTF) and Ether Tracker One (CETHF), which have been listed on Nasdaq Nordic since 2015 but have only lately been made available to U.S. investors through an over-the-counter (OTC) market.
In an announcement accompanying the formal order, the SEC said:
“The Commission temporarily suspended trading in the securities CXBTF and CETHF because of confusion amongst market participants regarding these instruments.”
Writing in the full order, SEC Secretary Brent J. Fields specifically noted that there is widespread confusion, including among broker-dealers, about whether these products are exchange-traded notes (ETNs), exchange-traded funds (ETFs), or -- as the issuer claims in its filing documents -- “non-equity linked certificates.”
"The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of the above quoted company," Fields wrote.
The formal suspension will continue through Sept. 20, but the order also warns that broker-dealers can face “prompt enforcement action” if they allow clients to resume trading without exhibiting “strict” compliance to SEC regulations governing securities that trade on the secondary market.
Swedish 'Bitcoin ETF' Sees Low Volume Ahead of Trading Suspension
CCN reported last month that the three-year-old Bitcoin Tracker One had entered the U.S. market, providing investors with a sort of “consolation prize” since the SEC had not yet allowed a regulated domestic exchange to list an outright bitcoin ETF, and most analysts do not expect a true bitcoin ETF until at least 2019.
Both Bitcoin Tracker One and Ether Tracker One allow investors to purchase exposure to the two largest cryptocurrencies by market cap while offloading the custodial risk to the fund operator, XBT Provider, a Swedish subsidiary of U.K. cryptocurrency investment firm CoinShares. Moreover, investors can hold shares of the funds in tax-advantaged investment accounts, such as Individual Retirement Accounts (IRAs).
“Everyone that’s investing in dollars can now get exposure to these products, whereas before, they were only available in euros or Swedish krona,” Ryan Radloff, CEO of CoinShares Holdings — the parent of the company that offers the bitcoin ETN — said at the time in an interview with Bloomberg. “Given the current climate on the regulatory front in the U.S., this is a big win for Bitcoin.”
Because the two funds are listed on an actual stock exchange in Sweden, they historically have not traded at a large premium to the spot price of the underlying assets, unlike Grayscale Investments’ Bitcoin Investment Trust (OTC: GBTC), which is available through most U.S. brokerages but is not listed on any exchange.
However, because CXBTF and CETHF are technically-structured as foreign debt instruments in the U.S., they have been difficult for many investors to access through retail brokerage accounts. This, compounded with lagging consumer interest in cryptocurrency investing, prevented either fund from carving out much market share in the days following their U.S debut.
During its first several weeks in the U.S., CXBTF had an average daily volume of 31,917 shares, worth close to $1 million according to data from OTC Markets. CETHF, meanwhile, averaged a paltry ~$2,200 in daily volume.
As a result, the announcement of the temporary trading suspension had virtually no impact on the global cryptocurrency spot markets, and the bitcoin price continued to trade near $6,300 at the time of writing.
XBT Provider did not immediately respond to CCN’s request for comment.
Read the full SEC order below:
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