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Confusion between ETN & ETF led to Bitcoin Tracker One’s SEC suspension: Securities Lawyer
XBT Provider, an issuer of Bitcoin and Ether exchange-traded products based in Sweden, introduced a Bitcoin Exchange-Traded Note (ETN) to be issued in the American market back in July. However, the Securities and Exchange Commission (SEC) – the apex financial regulator of the United States – suspended the ETN for a period of 10 days.
The announcement was made via an official statement from the SEC on Monday to suspend the Bitcoin Tracker One ETN till September 20. The reason behind the suspension was the ensuing confusion among investors with respect to products issued by XBT Provider, the SEC said in a statement.
The Securities and Exchange Commission announced the temporary suspension of trading in the securities Bitcoin Tracker One (“CXBTF”) and Ether Tracker One (“CETHF”) commencing at 5:30 pm EDT Sept. 9, 2018 and terminating at 11:59 pm EDT Sept. 20, 2018. https://t.co/5z1vEYFBFB
— SEC_News (@SEC_News) September 9, 2018
The demarcation between an ETN and an Exchange Traded Fund (ETF) on digital assets was not clearly defined in the company’s marketing. This has caused the Bitcoin Tracker One (CXBTF) and Ether Tracker One (CETHF) to mislead investors.
“The Commission temporarily suspended trading in the securities CXBTF and CETHF because of confusion amongst market participants regarding these instruments. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act).” said the SEC.
Jake Chervinsky, an enforcement defense and securities litigation attorney at Kobre Kim LLP, said there was no relation between the SEC’s suspension of the ETNs to the overall regulatory atmosphere of the two prime cryptocurrencies, Bitcoin and Ethereum, in the United States.
He explained that the Bitcoin Tracker One (CXBTF) and Ether Tracker One (CETHF) failed to put forth consistent and accurate information about their respective ETNs. Investors were led to believe that the aforementioned products were ETFs, thereby resulting in confusion.
Chervinsky said, “this is a problem with CXBTF and CETHF, not bitcoin or ether. As the full SEC order of suspension explains, the issue is ‘a lack of current, consistent and accurate information’ on these products, such as whether they are ETFs, ETNs, or something else.”
The main point of difference between an ETN and ETF is the onus of ownership. An investor can either earn or lose money depending on the price movement of the underlying stock, asset or commodity. When the investor invests in a cryptocurrency through an ETF, the digital asset in its actual form can be received from the ETF provider.
ETNs are privy to credit risk, since they are structured products issued as senior debt notes. Because of this, ETNs do not have the same degree of security and insurance as their counterpart, the ETF.
For these very reasons, the SEC wants to ensure that the two products issued by XBT Provider are clearly differentiated from ETFs so that investors are not misinformed and the market is not affected adversely.
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