US regulators are warning investors about the potential risks associated with gaining exposure to the Bitcoin futures market.
In a new investor bulletin, the U.S. Securities and Exchange Commission’s (SEC’s) Office of Investor Education and Advocacy (OIEA) and the Commodity Futures Trading Commission’s (CFTC’s) Office of Customer Education and Outreach (OCEO) enumerate four risk factors that investors should consider before jumping into funds that buy or sell Bitcoin futures.
The OIEA and the CFTC say that investors should consider their risk tolerance as well as the disclosure of the fund’s principal risks, which they can find in the prospectus. The US regulators also say that investors should consider the possibility of financial losses and the difference in investment outcome.
The regulators caution investors that positions in Bitcoin futures come with increased risk because of the highly volatile nature of the leading crypto asset and the BTC futures market. They also warn of the lack of regulation and the potential for fraud and manipulation in the underlying spot Bitcoin market.
The bulletin likewise explains that an increase in Bitcoin price does not automatically translate into a similar surge in the value of funds holding positions in Bitcoin futures contracts.
“This is in part because funds that trade commodity futures contracts may not have direct exposure to the contracts’ underlying assets. Futures contract prices can vary by delivery months and differ from the underlying commodity’s spot price. Futures contracts also expire periodically, resulting in fluctuations of portfolio exposure as expiring futures positions are typically rolled into new contracts. The value of a particular fund may be affected by this maintenance of futures contract exposure.”
The regulatory agencies claim specifically that Bitcoin exposed funds “may have unique characteristics and heightened risks compared to other funds.”
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