Footprint Analytics · 18 hours ago · 7 min read
Bitcoin › U.S. › Derivatives
U.S. SEC asks institutions to consider these 4 factors before trading Bitcoin
The SEC and CFTC put out a bulletin outlining what they believe are risks that investors should factor before entering the Bitcoin futures market.
As per the SEC, a futures contract is a standardized agreement to buy or sell a specific quantity of Bitcoin at a specified price on a particular date in the future. In the United States, Bitcoin is a commodity, and commodity futures trading is required to take place on futures exchanges regulated and supervised by the CFTC.
SEC warns investors of general investment risk levels
The first two considerations, as per the bulletin, focused on ensuring both funds and investors find and pay attention to their risk tolerance. The SEC pointed to the risk disclosures of the futures funds saying that “a fund is required to disclose the principal risks of investing in the fund in its prospectus.”
Although these two points are largely true to non-Bitcoin funds, the bulletin highlighted that funds that buy or sell BTC futures may have unique characteristics and heightened risks compared to other funds. “It is important to consider how any investment fits into your overall investment plan before investing,” it said.
Furthermore, the SEC stayed that funds trading BTC futures have extra risk because of the “potential for fraud and manipulation in the underlying cash or “spot” Bitcoin market” and due to the asset’s high volatility.
Futures funds may not move with Bitcoin market
The SEC also wants investors to recognize that Bitcoin futures funds are not the same as Bitcoin funds. It said that “a rise in prices may not result in a similar increase in the value of a fund holding positions in futures contracts.”
This is because the funds “may not have direct exposure to the contracts’ underlying assets” and other factors that make futures differ from the spot price.”
While crypto markets are gaining attention from institutional investors, the SEC and CFTC want to highlight that futures are risky investments that may not move with the price of spot Bitcoin.
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