UPDATE ON CRYPTO ASSETS IN ETFS -

In 2018, the US Securities and Exchange Commission’s Division of Investment Management staff penned a letter to the Investment Company Institute and the Securities Industry and Financial Markets Association titled “Engaging on Fund Innovation and Cryptocurrency-related Holdings” (letter) that acknowledged the growing interest in cryptocurrencies and cryptocurrency-related products and sought input on five substantive areas implicated by investment companies’ potential investment in cryptocurrencies or cryptocurrency-related products. On May 11, 2021, in the first substantive staff guidance since the letter, the staff issued a Statement on Funds Registered Under the Investment Company Act Investing in the Bitcoin Futures Market (statement). The goals of the statement were twofold. First, the staff strongly encouraged investors interested in investing in a mutual fund with exposure to the Bitcoin futures market to carefully consider the associated risks, including the volatility of Bitcoin and the Bitcoin futures market. Second, the staff clarified its views on the appropriateness of Bitcoin-related strategies for investment companies. At a high level, the staff expressed greater comfort with the Bitcoin futures market, noting that it has continued to develop since the Letter was published, has consistently produced a reportable Bitcoin price, and that the cash-settled futures do not present the custody concerns associated with other cryptocurrency-related investments. The staff then stated that it believed that investments in the Bitcoin futures market should be pursued only by closed-end funds and mutual funds. The staff did not directly address why investments in the Bitcoin futures market are not appropriate for ETFs, but implied ETFs cannot offer appropriate strategies to support Bitcoin futures and address potential liquidity challenges in the Bitcoin futures market. Three days after the staff issued its statement, a Bitcoin futures mutual fund registration statement was fled, and on July 28, 2021, it became the first actively offered Bitcoin futures mutual fund.