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The SEC says bitcoin's volatility means it's a highly speculative asset - and hints it may not be suitable to back an ETF

May 12, 2021, 20:20 IST
Business Insider
Dado Ruvic/Getty Images
  • The SEC has warned mutual fund investors of bitcoin's volatility, calling it "highly speculative."
  • Staff will assess whether the bitcoin futures market can accommodate ETFs, the regulator said.
  • Chairman Gary Gensler recently dampened hopes for bitcoin ETF approval.
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The US Securities and Exchange Commission on Tuesday warned mutual fund investors of the risks attached to bitcoin futures.

Calling it a "highly speculative" investment, the regulator said its investment management division will assess the impact of mutual-fund investments in bitcoin futures.

"As such, investors should consider the volatility of bitcoin and the bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying bitcoin market," the SEC said in a statement.

This warning follows new SEC chairman Gary Gensler dampening hopes for a bitcoin ETF after telling Congress last week the crypto market "could benefit from greater investor protection." He also said new rules could be required to tackle the gamification of trading popularized by apps like Robinhood.

The SEC now says it will "consider whether, in light of the experience of mutual funds investing in the bitcoin futures market, the bitcoin futures market could accommodate ETFs."

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Most crypto advocates hoped Gensler's confirmation as SEC Chair would be good for cryptocurrencies, but his new warnings and a long regulatory to-do list perhaps indicate the space isn't one of his first priorities.

Staff will also look into the impact of potential fraud in the underlying bitcoin market and monitor funds' valuations of holdings.

Bitcoin was last trading around 2% higher at $56,762 on Wednesday, and is up 95% year-t0-date.

"While the frenzy around Dogecoin may be subsiding, cryptocurrency markets remain exuberant," said Paolo Ardoino, CTO at Bitfinex. "Bitcoin watchers will doubtless be entertained. The king of crypto is radiating green today, as it holds a beacon for new possibilities."

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