U.S. SEC Commissioner Kara Stein on Cryptocurrency Fund Proposals

Earlier this week, U.S. Securities and Exchange (SEC) Commission member Kara Stein talked with Caroline Hyde and Scarlet Fu on Bloomberg TV ("Bloomberg Markets: The Close") about corporate earnings reports and cryptocurrency fund proposals.

Yale Law School graduate Kara Marlene Stein is an American attorney who was appointed by President Barack Obama to the U.S. SEC and was sworn in on 9 August 9 2013. Her tenure ends in December 2018.

In June 2018, at an SEC town hall event ("Investing in America: The SEC comes to you") held in Atlanta, Stein said:

“[Cryptocurrency] has the potential to reduce the cost of investing. It could decease the cost of capital allocation. We are being challenged, we are being disrupted like everybody else is… and one of the things we’re thinking about is how embrace the innovation and make sure it’s used effectively. One thing we are thinking through is how to ideally anticipate and prevent problems before they arise..

“I think remaining competitive requires, both us as regulators and market participants, to thoughtfully evolve with the innovation and not react to it after the fact... For example, there are increased risks for pump and dumps and Ponzi schemes, perhaps, because it’s so easy to now invest in that hotel resort community in some African nation.”

Below are the highlights from those parts of the Bloomberg TV interview that relate to cryptocurrencies.

How are you analyzing the crypto space, particularly ETFs?

 "So, we've actually had several companies who have been introducing ideas about how they could create some type of cryptocurrency fund, and we've been taking those proposals very seriously. We actually released a Staff Letter not too long ago, talking about some of the critical issues we will be looking at, which include valuation, liquidity, custody, and making sure that firms are thinking through how they are going to deal with all of those issues. I mean, in many ways, it's like having seatbelts and airbags and mufflers. You have to have basic things on your vehicle before you can go into the market. So, we require that of all products that we are looking at."

Do you think in the next year or so we will see an ETF based on crypto in the U.S.?

"I don't know the answer to that. I think it's all going to be based on facts and circumstances."

What's the SEC's primary objection to Bitcoin ETFs? Is it the nature of the underlying asset, is it the OTC pricing sources, is it the access to individual investors without sufficient protection?

"Those are all good points. But I think at the end of the day... whenever a fund presents a concept to us, they're going to have to show how they can get accurate valuations, despite sometimes volatile price swings, how they can make sure that there is physical custody when necessary, how they re going to make sure there is adequate liquidity... so investors can get their money when they need to get their money.

So, we'll look at all of those factors and make a decision based on that particular fund and how it's actually going to be able to handle those particular requirements."

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