The U.S. Securities and Exchange Commission (SEC) has issued a bulletin warning about the risks of bitcoin and ether exchange-traded funds (ETFs), highlighting their speculative nature. The regulator urged investors to consider potential issues like price volatility, fraud, and lack of regulatory oversight.
SEC Warns Investors About Risks in Bitcoin and Ether ETPs
The U.S. Securities and Exchange Commission (SEC)’s Office of Investor Education and Advocacy issued a bulletin on Monday, urging investors to consider the risks associated with bitcoin and ether exchange-traded products (ETPs), including exchange-traded funds (ETFs). The SEC noted:
Investors should understand that bitcoin and ether are highly speculative investments. This includes when exposure is gained through an exchange-traded product (ETP). Investors should consider the volatility of the price of bitcoin and ether.
The securities regulator explained that bitcoin and ether are digital assets transferred through blockchain technology, and their value fluctuates significantly. Two types of ETPs provide exposure to these assets: bitcoin and ether futures ETPs, which hold futures contracts, and spot ETPs, which directly hold the assets.
The SEC warned that spot bitcoin and ether ETPs are subject to risks such as price volatility and potential fraud in unregulated markets. The securities watchdog emphasized that “spot bitcoin and ether ETPs are not registered as investment companies under the Investment Company Act of 1940.” Therefore, they lack protections related to asset custody and valuation that apply to ETFs and mutual funds.
The SEC also outlined potential risks tied to spot ETPs, such as deviations in the price of ETP shares from the underlying crypto assets, a lack of regulatory oversight, and sponsor fees, which decrease the value of shares over time.
“Spot bitcoin or ether ETPs may have unique characteristics and heightened risks compared to other investments,” the regulator stressed, advising:
It is important to consider how any investment fits into your overall investment plan before investing.
The agency stressed the importance of reviewing disclosure documents for a comprehensive understanding of the risks involved.
What do you think about the SEC’s warnings regarding bitcoin and ether ETPs? Let us know in the comments section below.
