The collapse in cryptocurrency prices this year has left U.S. regulators scrambling to understand the risks that digital-asset markets could pose to the broader economy.
They may soon enlist hedge funds in the effort.
A joint proposal set to be issued Wednesday by the Securities and Exchange Commission and the Commodity Futures Trading Commission would require large hedge funds to report their cryptocurrency exposure through a confidential filing known as Form PF.
Created after the 2008 financial crisis, Form PF was designed to help regulators spot bubbles and other potential stability risks in the otherwise opaque network of private funds that manage money for wealthy individuals and institutions. Agencies including the SEC and Federal Reserve use data gathered in the form to publish aggregated statistics about the private-funds industry, which has more than doubled its assets since 2011.
The potential addition of cryptocurrency data to the reporting requirements for hedge funds comes as the SEC and CFTC weigh a broader set of updates that would expand the scope of Form PF.
It also reflects regulators’ concern that the extreme volatility of cryptocurrencies could eventually affect prices for other assets, particularly if more traditional financial institutions begin investing in them.
Under Wednesday’s proposal, hedge funds with more than $500 million of net assets would have to report more information about their investment exposures, portfolio concentrations and borrowing arrangements.
“Gathering such information would help the Commissions and [financial-stability regulators] better to observe how large hedge funds interconnect with the broader financial services industry,” SEC Chairman Gary Gensler said in a statement.