Key Takeaways
- • Cryptocurrencies are not currently regulated and do not have legal standing, existing only as consensus-based transactions between willing buyers and sellers, according to ICI Chief Industry Operations Officer Marty Burns.
- • Mutual funds and ETFs cannot include cryptocurrencies in their portfolios under current regulatory frameworks (the '40 Act) because regulators have not established whether cryptocurrencies should be classified as investments, currencies, or assets.
- • Regulatory clarity and structure from government authorities is a prerequisite before investment funds can consider cryptocurrency exposure, as the asset class currently lacks the framework necessary for compliance with fund investment standards.
- • Valuation remains a fundamental challenge for cryptocurrencies as investment vehicles, with the asset class resembling barter transactions rather than traditional securities with established valuation methodologies.
Summary
As of April 2018, cryptocurrencies including Bitcoin remain absent from mainstream investment vehicles such as 401(k)s, mutual funds, and ETFs, despite growing public interest in digital assets. According to ICI Chief Industry Operations Officer Marty Burns, this exclusion stems from the lack of regulatory oversight governing cryptocurrencies. Unlike traditional securities, cryptocurrencies are not issued by governments and carry no legal standing; they exist purely as consensus-based transactions where price is determined solely by what a willing buyer will pay and a willing seller will accept.
The primary barrier to cryptocurrency integration into regulated investment funds is the absence of clear regulatory classification. Burns noted that mutual funds and ETFs operating under the Investment Company Act of 1940 (the '40 Act) cannot accommodate cryptocurrencies until regulators provide definitive guidance on whether these assets should be classified as investments, currencies, or something else entirely. This regulatory ambiguity makes it impossible for fund managers to structure compliant portfolios that include cryptocurrency exposure.
Beyond regulatory classification, valuation presents a conceptual challenge for cryptocurrency as an investment asset. Burns emphasized that cryptocurrencies currently function more like barter systems than traditional investments with established valuation frameworks. Before fund industry adoption becomes viable, regulators must establish clear structure and direction that would allow cryptocurrency to fit within the investment criteria and risk management protocols required of regulated funds. Until such regulatory developments occur, cryptocurrency remains confined to direct individual investment and specialized trading platforms outside the traditional fund ecosystem.
The primary barrier to cryptocurrency integration into regulated investment funds is the absence of clear regulatory classification. Burns noted that mutual funds and ETFs operating under the Investment Company Act of 1940 (the '40 Act) cannot accommodate cryptocurrencies until regulators provide definitive guidance on whether these assets should be classified as investments, currencies, or something else entirely. This regulatory ambiguity makes it impossible for fund managers to structure compliant portfolios that include cryptocurrency exposure.
Beyond regulatory classification, valuation presents a conceptual challenge for cryptocurrency as an investment asset. Burns emphasized that cryptocurrencies currently function more like barter systems than traditional investments with established valuation frameworks. Before fund industry adoption becomes viable, regulators must establish clear structure and direction that would allow cryptocurrency to fit within the investment criteria and risk management protocols required of regulated funds. Until such regulatory developments occur, cryptocurrency remains confined to direct individual investment and specialized trading platforms outside the traditional fund ecosystem.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.