Funds Trading in Bitcoin Futures

The Securities and Exchange Commission’s (SEC’s) Office of Investor Education and Advocacy (OIEA) and the Commodity Futures Trading Commission’s (CFTC’s) Office of Customer Education and Outreach (OCEO) urge investors considering a fund with exposure to the Bitcoin futures market to weigh carefully the potential risks and benefits of the investment. Among other things, investors should understand that Bitcoin, including gaining exposure through the Bitcoin futures market, is a highly speculative investment. 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.

Bitcoin is a digital asset, or an asset that relies on blockchain technology. Bitcoin has also been called a “virtual currency” or a “cryptocurrency.”
Bitcoin future. A Bitcoin futures contract is a standardized agreement to buy or sell a specific quantity of Bitcoin at a specified price on a particular date in the future. In the United States, Bitcoin is a commodity, and commodity futures trading is required to take place on futures exchanges regulated and supervised by the CFTC.

Funds regulated under the Investment Company Act of 1940 and its rules (“funds”) are required to provide important investor protections. For example, funds must comply with legal requirements related to valuation and custody of fund assets, and mutual funds and ETFs must comply with liquidity requirements. Those protections apply to all of a fund’s holdings, including holdings of Bitcoin futures contracts. Some funds may engage in the trading of Bitcoin futures contracts as one way to gain exposure to Bitcoin. Investors should understand that positions in Bitcoin and Bitcoin futures contracts are highly speculative.

Investors who are thinking about investing in a fund that buys or sells Bitcoin futures should carefully consider:

The investor’s risk tolerance. Investors should focus on the level of risk they are taking compared to the level of risk they are comfortable taking. For more information, read Assessing Your Risk Tolerance.
The fund’s disclosure of its risks. A fund is required to disclose the principal risks of investing in the fund in its prospectus. For more information read, How to Read a Mutual Fund Prospectus (Part 1 of 3: Investment Objective, Strategies, and Risks).
Potential loss of the investment. All investments in funds involve risk of financial loss. This risk may be increased for positions in Bitcoin futures contracts because of the high volatility of Bitcoin and Bitcoin futures (meaning prices can fluctuate widely). There is also the potential for fraud and manipulation in the underlying cash or “spot” Bitcoin market.
Difference in investment outcome. A rise in Bitcoin prices may not result in a similar increase in the value of a fund holding positions in Bitcoin futures contracts. This is in part because funds that trade commodity futures contracts may not have direct exposure to the contracts’ underlying assets. Futures contract prices can vary by delivery months and differ from the underlying commodity’s spot price. Futures contracts also expire periodically, resulting in fluctuations of portfolio exposure as expiring futures positions are typically rolled into new contracts. The value of a particular fund may be affected by this maintenance of futures contract exposure. For more information about funds or exchange traded products that trade commodity futures, see Learn About Risks Before Investing in Commodity ETPs or Funds.

Funds that buy or sell Bitcoin futures may have unique characteristics and heightened risks compared to other funds. It is important to consider how any investment fits into your overall investment plan before investing.

This Investor Bulletin represents the views of the staff of the SEC’s Office of Investor Education and Advocacy and CFTC’s Office of Customer Education and Outreach. It is not a rule, regulation, or statement of the Securities and Exchange Commission or the Commodity Futures Trading Commission (the “Commissions”). The Commissions have neither approved nor disapproved its content. This Bulletin, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it does not create any enforceable rights or new or additional obligations for any person.