Updated 01 Jul, 2021

SEC and CFTC Warn US Investors Against Bitcoin Futures Risks

SEC and CFTC Warn

 

 

Key Takeaways:

  • The SEC and the CFTC release a warning to investors looking to own Bitcoin futures
  • The statement says investors should be wary of high volatility, fraud or manipulation

The two main regulatory agencies in the US, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have come out with a joint statement that underscores the risks involved in trading Bitcoin futures.

Investing In Bitcoin Futures Carries a High Risk

The warning statement calls out US investors who are interested in investing in funds that trade Bitcoin-related products especially Bitcoin futures contracts. This is currently the most popular way that mainstream investors could get their hands on the digital asset. This is a direct result of the fact that there is no government regulation that allows or oversees direct investments in Bitcoin.

By buying Bitcoin futures, investors bet on the asset’s future price without having to hold the underlying cryptocurrency. What other ways that institutional investors can get involved in the Bitcoin market?  Of course! By purchasing shares of companies that hold bitcoin, such as MicroStrategy or Square. The combined statement, though, makes no mention of this option.

Instead, the two agencies urge investors seeking exposure to Bitcoin futures to “weigh carefully the potential risks and benefits of the investment”.

Investors Should Evaluate Their Risk Tolerance

“Among other things, investors should understand that Bitcoin, including gaining exposure through the Bitcoin futures market, is a highly speculative investment,” the combined warning says. The regulators also mention that investors should consider the risk of fraud or market manipulation.

The SEC and the CFTC advise investors to assess the level of risk they’re comfortable taking. These regulatory bodies advise this due to the highly volatile and aggressive swings in Bitcoin’s price,  This measurement is directly related to the potential loss a Bitcoin investor is willing to take.

The statement says, “All investments in funds involve risk of financial loss. This risk may be increased for positions in Bitcoin futures contracts because of the high volatility of Bitcoin and Bitcoin futures”.

The SEC and the CFTC are the regulatory agencies primarily responsible for introducing a policy framework that would allow direct investments in Bitcoin. The SEC had not included cryptocurrency work on their immediate agenda. This was very surprising as there was all-time high demand by mainstream finance to participate in the crypto boom.