SEC suspends trading of Bitcoin Tracker One (XBT)
On Monday, the SEC halted trading of two cryptocurrency-pegged products, Bitcoin Tracker One and Ether Tracker One due to a mischaracterization of the nature of the products. Trading is suspended until Thursday, September 20th.
Bitcoin Tracker One (XBT) became the first Bitcoin-based security available for trading on a regulated exchange in 2015, when it was listed on the NASDAQ/OMX in Stockholm. As per the issuer, XBT Provider AB (publ), which is owned by London-based Coinshares, the certificates for XBT are described as “non-equity linked securities traded in the same manner as any share or instrument listed on Nasdaq exchange in Stockholm.”
This term — “non-equity linked securities — is not the issue, as per the the SEC’s order of suspension. The problem is that in “broker-dealer application materials submitted to enable the offer and sale” of the products in the United States and on “certain trading websites” they were characterized as “Exchange Traded Funds” and on “other public sources” they were referred to as “Exchange Traded Notes.”
An Exchange Traded Fund (ETF) is a publicly traded investment fund that holds a basket of securities. Instead, Bitcoin Tracker One and Ether Tracker One are synthetic products, meaning that while they track the price of their respective coins, there is not an actual reserve of said cryptocurrency being held to actually back the product. This difference may seem like mere minutiae, but it in the world of investing it is quite large. Owning a share of a fund backed by an actual reserve of currency, like an ETF, ensures that you own a physical piece of an asset, in this case Bitcoin or Ether. Owning a share of a synthetic instrument does not exactly entitle you, as the holder of the instrument, to actual ownership of anything.
That said, Bitcoin Tracker is a useful tool in the world of cryptocurrency, notably used on the popular exchange, Bitmex, that allows for heavy leverage trading. Additionally, XBT provides liquidity to the market; in other words, it allows for Bitcoin to be purchased or sold quickly without drastically affecting the price in one direction or another — a hallmark of a healthy, mature market.
In a statement released on XBT Provider’s website, the issuer clarified that the suspension “relates only to trading in the Unites [sic] States” and “does not apply to trading on the listing market – Nasdaq Stockholm, and does not relate to any action taken or failed to be taken by XBT Provider AB.”
It appears the suspension marks a temporary step back in the trading of XBT, and should be cleared up with a change in the characterization of the products.