Bitcoin futures funds too risky for investing, SEC warns investors reiterates

Issued a warning last month about safety concerns regarding such ETFs
  • Bitcoin futures funds have received quite an interest from institutional banks and corporations as they plan to create necessary funds
  • SEC weighs its riskiness as digital currencies are volatile and prone to speculative trading 
  • Cryptocurrency Exchange Traded Funds (ETFs) derive value from a digital currency like Bitcoin and trade like a normal asset thereon 

An exchange traded fund is a unique derivative product that derives its value from the underlying asset and helps fund managers with diversification benefits and risk neutralization. ETFs in the stock market have made their presence felt and the cryptocurrency market is the place where they are in the process of establishing themselves. 

However, the volatile nature of the underlying crypto asset, has made the SEC warn investors about its risks and the various risk parameters that could be triggered. The highly speculative trading market of cryptocurrencies has not fared well with the regulatory authority. 

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Moreover, ETFs are a pool of diversified securities where risks can be minimalized. In the case of Bitcoin futures funds, the risks are higher and mitigation is nil. Expense ratios are lower for Bitcoin ETFs as they continue to lure new entrants towards their stride. 

Crypto ETFs in the reckoning

The SECs warning will settle some dust for the time being but investors have already dug deep for superior returns. ETFs lack of capacity restrictions had the SEC closely monitor the market and request some time for a Bitcoin ETF to be authorised. 

Most funds are being recognised under a different law i.e., the Securities Act of 1933 as opposed to the Act of 1940. It shouldn’t be startling that Invesco with its $1.5 trillion investment fund plans to launch a cryptocurrency ETF in the US. 

Bitcoin ETF approval will gather steam in 2022 as companies and fund managers continue to rile up new products within the same market. Products that mimic the price of volatile digital currencies carry the same risky nature and have the potential to lose value within a short period of time. 

Cryptocurrency investors do not require to be bothered about complex storage procedures and security issues that entail investing in digital currencies. Diversification is the most lucrative tool that ETFs offer and thus the large influx of Bitcoin enthusiasts in the same.  

Risky derivative assets  

Furthermore, the SEC has also kept track of mutual funds that invest in Bitcoin ETFs for better returns. The regulatory body also argues that investors will keep entering into a Bitcoin futures fund as it is different from a mutual fund. 

It will be difficult for investors to liquidate their holdings if there is a dearth of buyers in the market. Digital currencies are susceptible to market manipulation and fraud that might hurt retail investors pooled in a cryptocurrency ETF. 

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Andrew Smith
Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing

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