SEC warns investors of the risks with Bitcoin futures

Published at: June 11, 2021

The U.S. Securities and Exchange Commision (SEC) has warned investors about the risks of Bitcoin futures trading — citing market volatility, a lack of regulation and fraud to name a few issues.

In a June 10 Investor Alerts bulletin, the SEC outlines key points that investors should “carefully consider” before investing in a fund that buys or sells Bitcoin futures.

“Investors should understand that Bitcoin, including gaining exposure through the Bitcoin futures market, is a highly speculative investment,” the bulletin read.

This latest Bitcoin-related risk warning from the SEC follows up on a note it sent out last month, warning investors "interested in investing in a mutual fund with exposure to the Bitcoin futures market" to think twice due to the risks.

The latest warning notes that while investments in all types of funds involve risk, funds that “buy or sell Bitcoin futures may have unique characteristics and heightened risks compared” to others:

“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 SEC also highlighted that Bitcoin’s price does not necessarily correlate with the value of the fund that holds Bitcoin futures positions. According to the SEC, this is in part due to the funds potentially not having a direct exposure to the “underlying assets.”

“Futures contract prices can vary by delivery months and differ from the underlying commodity’s spot price,” the bulletin read.

The bulletin also emphasized warnings such as “investors should focus on the level of risk they are taking compared to the level of risk they are comfortable taking,” which sparked a humorous response on Twitter, with finance and risk researcher and author Nassim Taleb, stating “I am very grateful that we have the SEC, thank God!”

I am very grateful that we have the SEC, thank God!

— Nassim Nifraudolas Taleb (@nnfraudtaleb) June 10, 2021

Related: JPMorgan points to weak Bitcoin futures as signal for bear market

The warning is the second time this week U.S. regulatory bodies have come out publicly against cryptocurrency derivatives. On June 8, Dan M. Berkovitz, the commissioner of the Commodity Futures Trading Commission (CFTC) said he believed that DeFi markets for derivatives are a “bad idea” and that he doesn’t see “how they are legal under the CEA.”

Caitlin Long, the founder and CEO of Avanti Financial, has been keeping an eye on narrative from public statements put out by U.S. governing bodies amid what she calls a “crypto regulatory crackdown”. She pointed out earlier today the SEC was likely even more alarmed about overseas platforms:

“SEC is issuing this investor warning re onshore exchanges, which offer only about 2.5x leverage--just imagine how it views offshore exchanges offering >100x leverage.”
Tags
Regulation
Sec
Bitcoin Regulation
Bitcoin Futures
Us Government
Futures
Related Posts
Bitcoin futures ETFs: Good, but not quite there
The odds of the United States Securities and Exchange Commission (SEC) approving a Bitcoin (BTC) exchange-traded fund (ETF) before a physical Bitcoin ETF are higher than ever, courtesy of Chairman Gary Gensler’s now oft-repeated preference for the former. But here’s the issue: an ETF built around crypto futures isn’t the most efficient, economical or easiest route. Physically backed products are. They’re likely to attract more assets and open the crypto market to more investors. And they are much easier for investors to understand. This is why fund issuers are better off pressing the SEC for clarity on what’s needed to …
Etf / Oct. 21, 2021
Law Decoded: Crypto risks, imaginary and real, and creative ways of addressing them, April 4–11
Last week, there was a lot of regulatory talk about crypto-related risks. While this is very common in itself, some angles and proposed solutions to such risks came across as novel. In the United States, the Federal Deposit Insurance Corporation (FDIC) issued a letter to commercial and savings banks under its purview, or all federally chartered banks, asking financial institutions to notify the FDIC about all ongoing and planned crypto-related activities. Apparently, standardized guidance for all banks would not fit the bill since the risks seem to be unique in each case. In Singapore, the local monetary authority became concerned …
Etf / April 11, 2022
Law Decoded: Infrastructure woes and benevolent punishments, Sept. 27–Oct. 3
This week, United States lawmakers and regulators have stolen much of the spotlight once more. The cryptocurrency-related provisions of the infrastructure bill, a tiny grain of sand in the grand scheme of the omnibus legislation, had all laser eyes glued to the fateful House of Representatives vote — which never happened. There is a sense, however, that the bill will become law sooner rather than later. We have also learned from Federal Reserve Chair Jerome Powell testifying to Congress that the Fed sees no use in a China-style blanket ban on cryptocurrency, eyeing tighter regulation of stablecoins instead. The latter …
Regulation / Oct. 4, 2021
How the Democratic Party didn’t stop worrying and fearing crypto in 2021
As 2022 is kicking off, America nears the first anniversary of Joe Biden’s presidency. Following the tenure’s ambitious start, the last few months witnessed some serious tumult around the overall health of the United States economy, the administration’s handling of the COVID-19 pandemic, and the tense debate around Biden’s opus magnum — the $1.7 trillion Build Back Better infrastructure legislation plan. But even as the Democrats’ ability to maintain undivided power after the 2022 midterm elections can raise doubts, the party’s prevailing view of crypto has become more consolidated than ever. The incumbent president’s party will be setting the tone …
Regulation / Jan. 1, 2022
The SEC was right to whack Kim Kardashian for shilling Ethereum Max
The charges incited a public debate — is the requirement to disclose the amount paid to promote an investment opportunity important? What’s new? Celebrities and social media influencers have long enjoyed a lucrative revenue stream in promoting and endorsing services and products ranging from clothing to beauty products, and even supplements and medications. The Federal Trade Commission (FTC) regulates endorsements by requiring various acts and disclosures, including whether a financial relationship exists between the endorser and the company, whether a post was paid for and even by requiring an endorser to personally try a product before endorsing it. Still, the …
Regulation / Oct. 12, 2022