After the Terra collapse, the SEC will force hedge funds to disclose their exposure to cryptocurrencies

US regulators want to expand their oversight of mutual fund investments in cryptocurrencies. In this regard, the US Securities and Exchange Commission (SEC) requires these funds to be more transparent.

Investment funds will disclose their cryptocurrency exposures

Funds will be required to disclose in detail what cryptocurrency positions they hold in their portfolio. The measure will apply to hedge funds that have more than $50 million in assets under management.

The reason for the new rule is, of course, the collapse of hedge fund Three Arrows Capital (3AC), which filed for bankruptcy last month. The fund had heavy exposures to lending protocols and lost a lot of money when these protocols went into crisis. As a result, investors suffered billions of dollars in losses. The SEC therefore intends to introduce transparency mechanisms for funds with their investors.

New rules

In addition to the SEC, the Commodities and Futures Trading Commission (CFTC) got involved because some cryptocurrencies can be classified as commodities.

Under the proposal, large hedge funds will have to disclose their cryptocurrency exposures. And not only the total amount, but also a breakdown of which cryptocurrencies they have and the share of each of them in their portfolio.

As with traditional results, this disclosure will take a specific form. This form is used by consultants to disclose information about private funds, i.e. funds that do not have tradable shares.

This helps the regulator to control any potential risks that could arise from the exposures and structure of the funds. The SEC created the form after the 2008 financial crisis and will now use it to collect information about cryptocurrencies.

This policy expansion seems particularly necessary given the growing correlation between cryptocurrency markets and the mainstream financial system. Recent troubling events in the sector also contribute significantly.

"Collecting this information will help financial stability commissions and regulators better monitor how interconnected hedge funds are with the rest of the financial services industry," said SEC Chairman Gary Gensler.

Since 2018, the SEC and CFTC have been fighting to decide who is responsible for regulating cryptocurrencies in the US. On the one hand, the SEC claims that several cryptocurrencies are securities and therefore would fall under its purview.

On the other hand, former CFTC presidents have already classified Bitcoin and even Ethereum as “digital commodities”. So based on that definition, the CFTC would be responsible for at least those two.

The problem is that none of the agencies have even reached agreement on which of these definitions is correct. On August 3, the Senate shed some light by passing a bill that would give the CFTC oversight of cryptocurrencies that meet commodity status. Therefore, BTC and ETH would be in this group.

Interesting events for our readers

Binance

Trade with up to 60% off fees and a $600 bonus

Open an account Review

Phemex

Free bonus up to $ 2,500 upon registration and deposit

Open an account Review

Bybit

Free bonus up to 3650 USD after registration and deposit

Open an account Review

All content in this article is for informational purposes only and does not in any way serve as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.