The SEC Office of Investor Education and Advocacy ("OIEA") and the CFTC Office of Customer Education and Outreach ("OCEO") cautioned investors on the risks associated with investing in a fund that has exposure to the Bitcoin futures market.
In a bulletin, the OIEA and OCEO reminded investors that (i) Bitcoin is a digital asset that is derived from blockchain technology, (ii) a Bitcoin futures contract is an agreement to purchase or sell a certain amount of Bitcoin at a set price on a specific date in the future, and (iii) such trading in the U.S. is required to take place on a CFTC-regulated futures exchange.
The OIEA and OCEO recommended that investors looking to invest in a fund that purchases or sells Bitcoin futures should consider:
- the potentially heightened risk of financial loss associated with Bitcoin futures contracts considering (i) the high volatility of the value of Bitcoin and (ii) the possibility of falling victim to fraud or manipulation in the underlying cash Bitcoin market;
- the potential for a difference between the price of Bitcoin and the value of a fund's positions in Bitcoin futures contracts as a result of (i) a fund's lack of direct exposure to the futures contract's underlying assets, and (ii) the periodic expiration of futures contracts, which can lead to fluctuations in the portfolio's exposure;
- their risk tolerance; and
- disclosures in the fund's prospectus concerning the principal risks associated with investing in such fund.
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