Just weeks after the debut of bitcoin futures in the U.S. and as exchange traded funds issuers are ramping up efforts to launch funds based on the digital currency, the Securities and Exchange Commission (SEC) is warning investors about cryptocurrencies and related investments.
In a public statement released Thursday, the SEC praised the North American Securities Administrators Association (NASAA) for encouraging investors to be cautious with cryptocurrencies.
“Investors should go beyond the headlines and hype to understand the risks associated with investments in cryptocurrencies, as well as cryptocurrency futures contracts and other financial products where these virtual currencies are linked in some way to the underlying investment,” said Joseph P. Borg, NASAA President and Director of the Alabama Securities Commission.
Other well-known digital currencies include ethereum, litecoin and ripple.
“Cryptocurrencies are a medium of exchange that are created and stored electronically in the blockchain, a distributed public database that keeps a permanent record of digital transactions,” according to the NASAA.
The SEC points out that some digital currency market participants and promoters of initial coin offerings (ICOs) are not following federal and state laws that govern other parts of financial markets, such as stocks and bonds.
“The NASAA release also reminds investors that when they are offered and sold securities they are entitled to the benefits of state and federal securities laws, and that sellers and other market participants must follow these laws,” said the SEC. “Unfortunately, it is clear that many promoters of ICOs and others participating in the cryptocurrency-related investment markets are not following these laws. The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment.”
Last month, bitcoin futures debuted on the Cboe, prompting a wave of filings from ETF issuers. To date, bitcoin ETFs have not been approved by U.S. regulators. Several ETF issuers filed plans earlier this year for such products, but the plans were scrapped because, at the time of those filings, there was not a bitcoin futures market.
Some market observers believe the launch of bitcoin futures will speed the introduction of exchange traded funds based on the digital currency. In recent weeks, several ETF issuers have also filed plans for blockchain ETFs, which would hold stocks with exposure to the digital currency trade.
For more information on the cryptocurrency market, visit our Bitcoin category.