U.S. SEC Warns About Mutual Funds’ Exposure to Bitcoin (BTC) Futures

Published May 12, 2021 | Updated May 12, 2021

In Brief
  • The SEC will conduct scrutiny about how mutual funds ensure investor protection while gaining exposure to Bitcoin derivative products.
  • It has asked investors to do due diligence and weigh risk appetite before putting money in such funds.

U.S. SEC Warns About Mutual Funds’ Exposure to Bitcoin (BTC) Futures

  • The SEC will conduct scrutiny about how mutual funds ensure investor protection while gaining exposure to Bitcoin derivative products.
  • It has asked investors to do due diligence and weigh risk appetite before putting money in such funds.

On Tuesday, May 11, the U.S. Securities and Exchange Commission (SEC) issued a warning for mutual funds that have exposure to Bitcoin futures and asked its investors to remain extremely cautious about it. With the parabolic rise in the BTC price over the last year, many hedge funds, insurance companies, endowments plans, pension funds, etc have been seeking exposure to BTC and its derivative products.

The SEC notes that while the Bitcoin derivative products are becoming increasingly popular, one must not forget that they are “highly speculative” and volatile in nature. The securities regulator asked investors to do their due diligence, weigh their risk appetite and examine the funds’ disclosures. As reported by Bloomberg, the U.S. SEC said:

“Investor protection and assessing the ongoing compliance of these funds is a top priority for the staff”. It further added that the agency “consider whether, in light of the experience of mutual funds investing in the Bitcoin futures market, the Bitcoin futures market could accommodate ETFs.”

The securities regulator said that it would initiate scrutiny while checking three major aspects.

  1. Look at the funds’ ability to liquidate their derivative in Bitcoin.
  2. Thoroughly analyze the Bitcoin futures market and see whether it “appropriately” support mutual fund investments in Bitcoin derivatives.
  3. Review the funds’ Bitcoin holdings and their valuations.

U.S. SEC and the Bitcoin ETF Approval

The U.S. market has been eagerly waiting for the launch of the first Bitcoin ETF. Many big financial giants have already submitted their proposals to the U.S. SEC for approval. Recently, the U.S. SEC delayed its decision for the approval of the VanEck Bitcoin ETF to June end.

In his latest remarks, SEC Chairman Gary Gensler expressed the need to work with the U.S. Congress to establish a clear regulatory framework for the working of crypto exchanges and crypto firms. Besides, he also called for updating the rules to control the social media manipulation of the market.

Although, Gensler is known for his crypto-friendly approach in comparison to his predecessor, his recent comments on Bitcoin and crypto speculations have hinted that Bitcoin ETF approval in the U.S. could possibly take more time than expected.

Disclaimer
The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
About Author
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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Bhushan Akolkar 544 Articles
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
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