The Securities and Exchange Commission (SEC) has asked asset manager Valkyrie Investments not to go forward with plans for a leveraged bitcoin exchange-traded fund (ETF), The Wall Street Journal (WSJ) reported.
Valkyrie Investments, which was looking to roll out a fund that would “amplify the daily returns of a portfolio of bitcoin derivatives” via the use of 1.25 times leverage, or borrowed money, was told to pull its offering, although its filing was still effective as of Wednesday (Oct. 27), according to the report.
The SEC is looking to curb new bitcoin-related products to only the ones providing “unleveraged exposure to bitcoin futures contracts,” the report stated. That includes the ProShares Bitcoin Strategy ETF rolled out last week to much anticipation.
The SEC’s decision about Valkyrie is another challenge to the asset management industry’s attempts to make money on investor interest in crypto, according to the report. Regulators have been curbing product launches to cut down on how many products investors are exposed to that might be vulnerable to risks like fraud and manipulation.
In addition, Direxion filed plans for an ETF that would let investors bet against ProShares ETF’s bitcoin futures contracts, the report stated.
The SEC, under the rules on ETF proposals, has 75 days to review fund applications, and the if there are no objections, the fund is effective by the end of that period, according to the report.
The SEC’s concerns are built on an incident from 2018 in which several ETFs saw volatility and ended up losing big. That caused the loss of billions of dollars from investor assets, the report stated.
In addition, leveraged products were affected in 2020 due to the pandemic’s effect on energy markets, according to the report. That caused the SEC to create new restrictions on how much leverage those products can use.
In other news, there could be negative consequences to the mass interest in bitcoin on Wall Street, with the ETF from ProShares possibly being a “derivative bet” on bitcoin’s price direction. The coin traded down from its recent highs as of this week.
Read more: Launch of Bitcoin ETFs Could Worsen Crypto’s Existing Volatility Problem
Some analysts put the blame for that on high demand for ETFs and price pressure on underlying securities.
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