Many investors thought the idea of a cryptocurrency fund was dead on arrival due to stiff regulatory hurdles. But the possibility of a Bitcoin ETF just got a new breath of life — and that could be bad news for the cryptocurrency craze.

The Securities and Exchange Commission has quietly begun the formal process of soliciting public opinion on whether two proposed ETFs that are seeking to track Bitcoin futures contracts should be listed on the NYSE Arca exchange. At the same time, the Chicago Board Options Exchange is lobbying the SEC to reconsider its earlier position of blocking approval for crypto funds.

In January, the SEC’s director of investment management, Dalia Blass, indicated that the commission was not likely to sign off on any cryptocurrency ETF until questions about the volatility and security of cryptos were addressed. The CBOE’s position is understandable.

Bitcoin futures contracts began trading on the CBOE in December, so the exchange has a vested interest in the adoption of cryptocurrency funds and ETFs, as they could significantly boost trading in Bitcoin contracts. Still, these recent developments have given fans of cryptocurrencies a ray of hope.

But this may be a case of “be careful what you wish for.” History is replete with examples of “hot” investing trends turning cold once they reach sufficient popularity for the financial services industry to launch mass-marketed funds. For instance, so-called BRIC funds — which invest in emerging market stocks based in Brazil, Russia, India, and China — began to come to market in 2007 and 2008, as the bull market in emerging market stocks appeared to be over and shortly before market commentators began to declare the BRIC strategy dead. Read more from…

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