The SEC and CFTC made a joint statement urging investors considering a fund with exposure to the Bitcoin futures market to weigh carefully the potential risks and benefits of the investment.
“Among other things, investors should understand that Bitcoin, including gaining exposure through the Bitcoin futures market, is a highly speculative investment. As such, investors should consider the volatility of Bitcoin and the Bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying Bitcoin market”, the regulators stated.
“A Bitcoin futures contract is a standardized agreement to buy or sell a specific quantity of Bitcoin at a specified price on a particular date in the future. In the United States, Bitcoin is a commodity, and commodity futures trading is required to take place on futures exchanges regulated and supervised by the CFTC.
The statement explains these funds are required to provide important investor protections such as valuation and custody of fund assets, while mutual funds and ETFs must comply with liquidity requirements. Those protections apply to all of a fund’s holdings, including holdings of Bitcoin futures contracts.
The SEC and the CFTC called investors considering in investing in a fund that buys or sells Bitcoin futures to carefully consider they own risk tolerance, the fund’s disclosure of its risks, potential loss of the investment (in Bitcoin, not only there is high volatility but also potential for fraud and manipulation in the underlying cash or “spot” Bitcoin market), and difference in investment outcome as Futures contract prices can vary by delivery months and differ from the underlying commodity’s spot price.
“Futures contracts also expire periodically, resulting in fluctuations of portfolio exposure as expiring futures positions are typically rolled into new contracts. The value of a particular fund may be affected by this maintenance of futures contract exposure”, they said, adding that Bitcoin funds may have unique characteristics and heightened risks compared to other funds. It is important to consider how any investment fits into your overall investment plan before investing.
Both regulators are concerned for retail investors as Bitcoin gains ground within capital markets and more and more firms join the ranks and announce new offerings include exposure to BTC and other cryptos.
Most recently, Bottllepay launched its app in Europe, which allows clients to buy, hold, and exchange Bitcoin via social media platforms.
This week, El Salvador approved Bitcoin as legal tender. A revolutionary moment that could both lead the world to great things or spell disaster for the country by using a deflationary asset as a currency.