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According to the SEC, “investors should understand that Bitcoin, including gaining exposure through the Bitcoin futures market, is a highly speculative investment.”
The Securities and Exchange Commission (SEC) of the United States has issued a warning to investors about the hazards of Bitcoin futures trading, citing market volatility, a lack of regulation, and fraud, to name a few concerns.
The SEC lists critical issues that investors should “carefully consider” before participating in a fund that buys or sells Bitcoin futures in a June 10 Investor Alerts advisory.
“Investors should understand that Bitcoin, including exposure via the Bitcoin futures market, is a highly speculative investment,” according to the advisory.
The SEC’s newest Bitcoin-related risk warning builds on a previous notice it issued last month, telling investors “interested in investing in a mutual fund with exposure to the Bitcoin futures market” to think twice owing to the dangers.
While investments in all types of funds include risk, funds that “buy or sell Bitcoin futures may have unique characteristics and heightened risks compared to others,” according to the newest warning:
“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
This is the second time this week that US regulatory organisations have openly condemned Bitcoin derivatives. On June 8, Dan M. Berkovitz, commissioner of the Commodity Futures Trading Commission (CFTC), stated that DeFi derivatives markets are a “bad idea” and that he does not understand “how they are legal under the CEA.”
Caitlin Long, the founder and CEO of Avanti Financial, has been monitoring the story from public remarks released by U.S. regulating organisations in the midst of what she refers to as a “crypto regulatory crackdown.” She stated earlier today that the SEC was likely much more concerned about offshore 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.”