SEC Warns Investors against ‘Highly Speculative’ Bitcoin Funds

Divisions of the United States’ two top agencies, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), reiterated the risks involved with funds having exposure to Bitcoin.

A note published last Thursday by the SEC’s Office of Investor Education and Advocacy (OIEA) and the CFTC’s Office of Customer Education and Outreach (OCEO) urged investors interested in such crypto-exposed funds to carefully consider the involved risks and benefits.

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“Investors should focus on the level of risk they are taking compared to the level of risk they are comfortable taking,” the joint statement stated.

Additionally, the warning considered positions in Bitcoin and Bitcoin futures contracts as ‘highly speculative’. Further, it stressed that investors should properly understand the risks associated with Bitcoin and the Bitcoin futures instruments.

“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 warning added.

Multiple Warnings

This is the second such warning issued by the US regulatory agency on the risks associated with Bitcoin investments. Moreover, the timings remained crucial as several companies in the country are pushing to get SEC approval to list Bitcoin and Ethereum exchange-traded funds (ETFs).

Last month, another note from the SEC to the investors highlighted the agency’s negative stance towards Bitcoin ETFs due to the speculative nature of the asset class.

“Funds regulated under the Investment Company Act of 1940 and its rules (‘funds’) are required to provide important investor protections,” the latest warning added. “Those protections apply to all of a fund’s holdings, including holdings of Bitcoin futures contracts. Some funds may engage in the trading of Bitcoin futures contracts as one way to gain exposure to Bitcoin.”

“Funds that buy or sell Bitcoin futures may have unique characteristics and heightened risks compared to other funds.”