© Reuters. FILE PHOTO: A collection of Bitcoin (virtual currency) tokens are displayed in this picture illustration© Reuters. FILE PHOTO: A collection of Bitcoin (virtual currency) tokens are displayed in this picture illustration

By Trevor Hunnicutt and Kanishka Singh

(Reuters) – The U.S. securities regulator on Thursday raised alarm about the safety of bitcoin-themed investments, telling the fund industry they want answers to their concerns before endorsing more than a dozen proposed products based on cryptocurrencies.

A top division chief at the U.S. Securities and Exchange Commission detailed the agency’s concerns about the wild-trading investment in a letter to two trade groups representing fund managers who unleashed a range of proposals for funds holding bitcoin or related assets.

The SEC’s division of investment management demanded answers to at least 31 detailed questions about how mutual funds or exchange-traded funds based on bitcoin would store, safeguard, and price that asset.

They also asked whether investors can understand the risks and how to address concerns that bitcoin markets could be manipulated.

“There are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to investors,” said the letter signed by Dalia Blass, the SEC’s director of the division of investment management.

Bitcoin’s 1,500 percent surge last year stoked investor demand for any product with exposure to the red-hot asset. A host of companies are jostling to launch exchange-traded funds which would open up the cryptocurrency to a broad retail market.

The SEC in March denied a request to list an ETF from investors Cameron and Tyler Winklevoss, owners of the Gemini bitcoin exchange.

The Winklevoss fund is seeking to invest in bitcoin directly. Other fund firms staked their hopes on recently launched U.S.-listed bitcoin futures contracts, which promised a more stable base for ETFs than the largely unregulated virtual currency spot market. Many of those proposals were withdrawn last week at the request of the SEC.

was last down a fraction of a percent for the day at $11,228 on the Bitstamp exchange, but it has tumbled more than 40 percent from its peak in December.

Jeremy Senderowicz, a lawyer who represented one proposal for a cryptocurrency product before the SEC, said the SEC statement is a “really big deal” by making public concerns that fund managers would have had to address on a case-by-case basis, behind the scenes.

“It shows that they’re going to have to take some time to consider the industry’s responses before they change their minds on it,” said Senderowicz, a partner at Dechert LLP.

“It gives a template for how to get to a yes.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.