The US Securities and Exchange Commission (SEC) has warned investors about the risks of bitcoin futures trading, such as market volatility, lack of regulation and fraud.
On June 10 Investor notice 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 bitcoins, including gaining exposure in the bitcoin futures market, are highly speculative investments,” the bulletin said.
This latest bitcoin risk warning from the SEC follows a message sent out last month warning investors “interested in investing in a mutual fund with a exposure to the bitcoin futures market” to think twice about the risks.
The most recent warning states that while investing in all types of funds involves risk, funds that “buy or sell bitcoin futures may have unique characteristics and higher risks than others”:
“Investors should consider the volatility of bitcoins and bitcoin futures markets, as well as the lack of regulation and the potential for fraud or manipulation of the underlying bitcoin market.”
The SEC also emphasized that the price of bitcoin is not necessarily related to the value of the fund that holds the bitcoin futures position. According to the SEC, this is partly due to funds that potentially have no direct exposure to “underlying assets”.
“The prices of futures contracts may vary depending on the delivery months and differ from the spot price of the underlying commodity,” the bulletin said.
The bulletin also highlighted warnings such as “investors should focus on the level of risk they take compared to the level of risk they take comfortably,” which provoked a humorous response on Twitter, with researcher and author of finance and risk Nassim Taleb saying “I am very grateful that we have SEC, thank god! “
I am very grateful to have the SEC, thank God!
– Nassim Nifraudolas Taleb (@nnfraudtaleb) June 10, 2021
The warning is the second time this week US regulators have publicly spoken out against cryptocurrency derivatives. On June 8, Dan M. Berkovitz, commissioner of the Commodity Futures Trading Commission (CFTC), said he believed DeFi markets for derivatives they are a “bad idea” and that they do not see “how legal they are according to the CEA.”
Caitlin Long, founder and CEO of Avanti FinanciaI follow a story from public statements by US government authorities in the midst of what he calls “cryptocurrency regulation intervention“. She pointed earlier today, the SEC was probably even more concerned about overseas platforms:
“The SEC is issuing this warning to investors on offshore exchanges that offer only 2.5x leverage – just imagine how it looks at offshore exchanges that offer> 100x leverage.”