The U.S Securities and Exchange Commission halted two cryptocurrency-backed securities on Sunday following concerns of “market confusion” among participants.
ETFs Remain a Gray Zone
According to the SEC notice, XBT Provider’s Bitcoin and Ether exchange-traded notes (ETNs), Bitcoin Tracker One (CXBTF) and Ether Tracker One (CETHF) will be suspended of trading until Sept. 20, due to concerns of “confusion” among retail investors regarding crypto finance instruments.
Citing a lack of “current, consistent and accurate information,” the trading lockdown was issued with immediate effect.
According to the SEC, the broker-dealers submitted the product applications in the U.S. under the premise of an exchange-traded fund (ETF), despite the general populace believing the offering to be an ETN. The issuer, however, classified the products as a “non-equity linked certificate.”
That said, the SEC called out the inconsistent, inaccurate and confusing information surrounding the XBT-issued crypto product. With this, the watchdog stated it was in “public interest” to temporarily cease trading of the two offerings.
The statement further added:
“[T]he Commission cautions broker-dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.”
Both the CXBTF and CETHF are issued by XBT Provider, a wholly-owned subsidiary of U.K.-based CoinShares Holdings, and are listed on the NASDAQ exchange in Stockholm.
ETFs and ETNs
Presumably, the two products attracted the watchdog’s attention after being identified and labeled comparable to an ETF, a commercial offering that is more structured and secured than an ETN.
ETFs allow investors to place bets on a fund backed by the underlying asset’s massive holdings, which are adjusted in portfolio value comparable to the asset’s market performance.
ETNs, meanwhile, represent a bond guaranteed by a statutory underwriter and do not actively trade the assets represented, creating a high-reward investment at a more considerable risk.
The SEC has infamously taken a hard stand toward Bitcoin ETFs, with nine such applications rejected in August 2018 alone. As reported by CryptoSlate, the watchdog cites potential fraud and market manipulation as the primary reasons behind the ETF rejection.