SEC Warns of Risks of Investing in Bitcoin Futures for Mutual Funds

The U.S. Securities and Exchange Commission (SEC) issued an official public statement to warn investors of the risks of Bitcoin futures in mutual funds.

Compared with the spot market, the futures market often has larger risk exposure. For digital currencies, taking Bitcoin as an example, its sharp price volatility would likely make many investors who invest in the Bitcoin Futures markets with leverage suffer more loss. Therefore, the US Securities and Exchange Commission (SEC) recommended that investors carefully assess their risk tolerance, diversify their investment portfolios to reduce their total investment risks.

Stressing that Bitcoin is a “highly speculative investment”, SEC wrote:

"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 announcement comes amid Bitcoin’s plunge today, where it momentarily reached $45,500. Currently, it has regained a bit of momentum, trading at $51,303 at the time of writing. Its liquidation volume peaked at $1.95 billion. In the past 24 hours, a total of 347,227 traders were liquidated.

Since the launch of Bitcoin futures in 2017, The Division of Investment Management (IM) has pointed out that the Bitcoin futures market has expanded significantly as trading volume and open positions have increased.

As some mutual funds are investing or planning to invest in Bitcoin futures, the US Securities and Exchange Commission will pay close attention and assess whether these mutual fund companies and their investment consultants comply with the Investment Company Act and the policies of other federal securities laws.

IM institute said:

"Investor protection and assessing the ongoing compliance with these funds is a top priority for the staff."

In addition, IM employees will collaborate with personnel from the Economic and Risk Analysis Department and the Examination Department to evaluate the impact of mutual fund investments in Bitcoin futures on investor protection, capital formation, market fairness, and efficiency.

Although the US government is still hesitant on whether to approve the Bitcoin Exchange-Traded Funds (ETFs), the SEC has exercised its right and has postponed its scheduled decision on VanEck’s ETF application from May 3 to June 17.

However, Bitcoin ETFs have been launched in other countries. Currently, North America’s Bitcoin ETFs has received the green light to operate in Canada. Recently, the Bitcoin ETF from 3iQ and Coinshares was approved by the Ontario Securities Commission and was listed on Toronto Stock Exchange on April 19.

In March, Brazil's Securities and Exchange Commission approved two cryptocurrency ETFs one after another, including a 100% Bitcoin ETF and the other one consisting of five cryptocurrencies.