SEC issues a warning: Bitcoin is 'highly speculative', be aware of 'investor loss'
(Kitco News) The U.S. Securities and Exchange Commission (SEC) has issued a new warning for investors interested in mutual funds that have holdings in bitcoin futures, saying that the popular cryptocurrency is "highly speculative" and volatile, and everyone should be aware of the risks involved.
The message comes from the SEC's division of investment management, which is advising anyone looking at mutual funds with exposure to bitcoin futures to carefully consider the possibility of loss.
"Investors should understand that Bitcoin, including gaining exposure through the Bitcoin futures market, is a highly speculative investment. As such, 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 said in a statement on Tuesday.
Before investing, market participants need to weigh their own risk tolerance, the SEC pointed out. "Investor protection and assessing the ongoing compliance of these funds is a top priority for the staff."
As part of its monitoring, the SEC will look into the liquidity and depth of the bitcoin futures market, analyze mutual funds' ability to liquidate bitcoin futures positions to meet daily redemption demands, and assess the potential for fraud or manipulation.
When it comes to bitcoin ETFs in the U.S., the SEC's added that it would "consider whether, in light of the experience of mutual funds investing in the Bitcoin futures market, the Bitcoin futures market could accommodate ETFs, which, unlike mutual funds, cannot prevent additional investor assets from coming into the ETF if the ETF becomes too large or dominant in the market, or if the liquidity in the market starts to wane."
This investor warning comes just days after SEC Chairman Gary Gensler said that there are some apparent gaps in the regulatory framework surrounding crypto assets.
"Our authority is around securities and around asset managers and products that might invest in these cryptocurrencies," Gensler said during his testimony before the House Financial Services Committee. "Right now, the exchanges trading in these crypto-assets do not have a regulatory framework either at the SEC or CFTC. There is no market regulator, and thus there is really no protection against fraud or manipulation."