In brief
- The U.S. SEC has issued a statement urging investors to exercise caution in the Bitcoin futures market.
- The SEC's statement comes as it is considering at least eight high-profile applications for a Bitcoin ETF.
The U.S. Securites and Exchange Commission (SEC) has issued a statement about the Bitcoin futures market, calling for investors to exercise caution and be mindful of risks.
In the statement, the SEC’s Division of Investment Management (IM), “strongly encourages any investor interested in investing in a mutual fund with exposure to the Bitcoin futures market to carefully consider the risk disclosure of the fund, the investor’s own risk tolerance, and the possibility, as with all investing, of investor loss,” the SEC said.
What are Bitcoin futures and what does the SEC think about them?
Bitcoin futures allow investors to gain exposure to Bitcoin without having to hold or store the cryptocurrency itself.
Like any other futures contract for a commodity or stock, Bitcoin futures give investors the chance to speculate on the future price of Bitcoin. In the SEC’s statement, Bitcoin futures are described as highly speculative.
In addition, the SEC warned against price volatility and scams in the wider Bitcoin market
“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.
This isn’t the first time that the SEC has shared its thoughts on the Bitcoin futures market.
Shortly after Bitcoin futures began trading in 2017, the SEC released the Cryptocurrency Holdings Letter, which acknowledged how the Bitcoin futures market was—at the time—a nascent market.
Since then, the SEC’s view has evolved. Despite giving an overall warning about the risks inherent in the futures market, the SEC has also noted the progress made since 2017.
“The Bitcoin futures market has developed since then, with increased trading volumes and open-interest positions,” the SEC said, adding, “The Bitcoin futures market consistently has produced a reportable price for Bitcoin futures.”
The SEC’s ETF journey
The SEC’s statement comes as a number of applications for Bitcoin ETFs (exchange traded funds) have landed on its desk.
As of last month, the SEC had received at least eight high-profile Bitcoin ETF applications. These applications include one from VanEck, which already runs many ETFs across other sectors. The SEC has pushed their decision on VanEck’s Bitcoin ETF proposal to at least June of this year.
The SEC is also dealing with ETF applications from Mike Novogratz’s Galaxy Digital, Anthony Scaramucci’s SkyBridge Capital, and the New York Digital Investment Group. As yet, none have been approved.
However, to the north, Bitcoin ETFs have flourished. Canada approved its first Bitcoin ETF in February of this year when the Purpose Bitcoin ETF began running on the Toronto Stock Exchange.
Canada has since approved two other ETFs, putting further pressure on the U.S. SEC to open its doors. Despite the long wait, many Bitcoiners are optimistic that the SEC will soon approve an ETF, partly due to the appointment of Gary Gensler as chairman of the SEC.
Gensler is widely considered to be crypto-friendly, given that he once taught a course on blockchain technology at MIT, and wrote an op-ed suggesting that blockchain technology could be a “catalyst” for change.
With the SEC reiterating its view that the Bitcoin market is volatile and rife with fraud and manipulation, though, the optimism among the crypto community around Gensler’s appointment may be short-lived.