ETFs or Not: Crypto Products Spark Regulatory Debate

The Securities and Exchange Commission (SEC) has opened the door for public comment on novel investment strategies, including those related to cryptocurrency. The call, issued in June, has garnered over 80 responses from lawyers, industry associations, and individual investors, many of whom are seeking clarity on regulatory matters.

However, one group, the Mutual Fund Directors Forum (MFDF), has taken a more assertive stance. In a recent letter to the SEC, MFDF president Carolyn McPhillips argued that products not regulated by the Investment Company Act of 1940 should be barred from using the Exchange-Traded Fund (ETF) title.

The issue at hand centers around spot crypto products, which are often offered in exchange-traded-product form. These funds, such as iShares' Bitcoin Trust ETF (IBIT) and Fidelity's Wise Origin Bitcoin Fund (FBTC), have seen significant growth since their introduction in early 2024.

The MFDF's position is that the use of the ETF label implies regulatory oversight by an independent board of directors, which may not be applicable to these spot crypto products. McPhillips emphasized that 'having that distinction is important for shareholders.'