SEC Turns Focus on Cryptocurrency Investment Advisors

The regulator reacts to the population explosion of investment advisers working with cryptocurrency.

The Securities and Exchange Commission, one of the US’ main financial regulators, is now investigating investment advisers over their links to cryptocurrency, according to Politico.

A New Direction

Fund managers in charge of $100 million and more come under the SEC’s supervision. Citing “three people familiar with the matter”, the outlet says that the watchdog is interested in how these people are storing cryptocurrency, possible price manipulation, and cyber-security issues.

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This last point is because of the proven vulnerability of cryptocurrency entities to hacks. The SEC regulates how advisers store their customers’ money, but the old guidelines are not really relevant to digital assets.

This is a new direction for the SEC. Previously, it had mainly been concerned with the question of whether or not a token is a security, and it has been kept busy shutting down fraudulent initial coin offerings.

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A few examples: in September, it moved on a company called 1pool which was selling unregistered securities, and TokenLot, which opened what it called an ‘ICO superstore’. In October, it shut down the fundraising drive of Blockvest, a company that falsely claimed a that the SEC had given it a licence.

Move May Not Be Unwelcome

The regulator has also repeatedly declined approval to companies that tried to get licences to trade exchange-traded funds based on Bitcoin futures, mainly because of worries about possible market manipulation. Early in 2018, it sent out subpoenas to multiple cryptocurrency exchanges, collecting information to exactly this end.

Its new approach may be the result of the increasing number of funds created to cater to big money investors interested in cryptocurrency. In June, one research company found that there were at that point 212 hedge funds created to focus specifically on cryptocurrency, with more popping up all the time.

The move may not be an unwelcome one in the US; as has been repeatedly shown, businesses are eager for regulatory certainty so they can make money in peace. Gail Bernstein of the Investment Adviser Association told Politico: “Typically, after a sweep of this type, the SEC staff will publish its findings and observations, and that can provide very helpful guidance for advisers as they consider their compliance obligations.”

 

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