The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have urged investors considering a fund exposed to Bitcoin futures to “weigh carefully the potential risks and benefits of the investment.”
The SEC’s Office of Investor Education (OIE) and the CFTC Office of Customer Education and Outreach (OCEO) issued the combined warning.
“Among other things, investors should understand that Bitcoin, including gaining exposure through the Bitcoin futures market, is a highly speculative investment,” the warning read.
In addition, both regulatory agencies warned against the potential of fraud and manipulation inherent in the Bitcoin industry.
The risks behind Bitcoin futures
The SEC and CFTC also advised investors to evaluate their own risk tolerance—the level of risk they are comfortable taking. This goes hand in hand with considering the potential loss of investment.
“All investments in funds involve risk of financial loss. This risk may be increased for positions in Bitcoin futures contracts because of the high volatility of Bitcoin and Bitcoin futures,” the statement said.
In addition, investors should assess the fund’s disclosure of its own risks. Funds are required to disclose these risks in its prospectus, a document that details all information about a fund.
Finally, the SEC and CFTC warned investors about the difference in investment outcomes. A rise in Bitcoin’s price, for instance, may not necessarily result in a similar increase in the value of a fund that holds these kinds of futures contracts.
“This is in part because funds that trade commodity futures contracts may not have direct exposure to the contracts’ underlying assets,” the two agencies said, adding that futures contracts also expire periodically, resulting in fluctuations in an investor’s portfolio.