The US Securities and Exchange Commission (SEC) has warned investors about the risks of trading Bitcoin futures, citing market volatility, lack of regulation, and fraud, to name a few issues.
On a June 10 Investor alerts newsletter, the SEC outlines key points 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 newsletter read.
This latest Bitcoin-related risk warning from the SEC follows 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 caveat notes that while investments in all types of funds involve risk, funds that “buy or sell Bitcoin futures may have unique characteristics and higher risks compared to” others:
“Investors should consider the volatility of Bitcoin and the Bitcoin futures market, as well as the lack of regulation and the potential for fraud or manipulation in the underlying Bitcoin market.”
The SEC also noted that the price of Bitcoin does not necessarily correlate with the value of the fund that holds Bitcoin futures positions. According to the SEC, this is in part because the funds potentially have no direct exposure to the “underlying assets.”
“Prices of futures contracts may vary depending on the months of delivery and differ from the spot price of the underlying commodity,” the bulletin reads.
The newsletter also emphasized caveats such as “investors should focus on the level of risk they are taking compared to the level of risk they are comfortable taking,” prompting a humorous response on Twitter, with the finance researcher and Hazards and author Nassim Taleb, stating “I am so thankful that we have the SEC, thank goodness!”
I am so thankful that we have the SEC, thank goodness!
– Nassim Nifraudolas Taleb (@nnfraudtaleb) June 10, 2021
Related: JPMorgan Targets Weak Bitcoin Futures As Signal For Bear Market
The warning is the second time this week that US regulators have spoken out against crypto derivatives. On June 8, Dan M. Berkovitz, the commissioner of the Commodity Futures Trading Commission (CFTC) said that he believed that DeFi markets for derivatives are a “bad idea” and that he does not see “how they are legal under the CEA.” ”
Caitlin Long, founder and CEO of Avanti Financial, has been attentive to the narrative of public statements issued by US governing bodies amid what she calls a “crypto regulatory crackdown.” Her pointed Earlier today, the SEC was probably even more alarmed by overseas rigs:
“The SEC is issuing this warning to investors about onshore exchanges, which offer only about 2.5x leverage; imagine how you view overseas exchanges offering> 100x leverage.”