SEC warns investors about risks of Bitcoin and Ether ETFs

The U.S. Securities and Exchange Commission (SEC) has issued a bulletin cautioning investors about the risks associated with Bitcoin (CRYPTO:BTC) and Ether (CRYPTO:ETH) exchange-traded funds (ETFs) and other exchange-traded products (ETPs). 

The SEC's Office of Investor Education and Advocacy released the advisory, highlighting the speculative nature of these digital assets and urging investors to carefully consider the risks, including price volatility, fraud, and lack of regulatory oversight. 

In the bulletin, the SEC stated, "Investors should understand that bitcoin and ether are highly speculative investments," whether they are accessed through direct investments or ETPs. 

The regulator emphasised the importance of recognising the inherent volatility in the prices of Bitcoin and Ether, which can result in significant fluctuations. 

The SEC explained that Bitcoin and Ether are digital assets traded on blockchain technology, and there are two main types of ETPs providing exposure to them: futures ETPs, which hold futures contracts, and spot ETPs, which directly hold the underlying assets. 

The SEC particularly warned that spot Bitcoin and Ether ETPs are not registered under the Investment Company Act of 1940. 

This lack of registration means these products do not have the protections related to asset custody and valuation that traditional ETFs and mutual funds enjoy. 

Further, the SEC outlined additional risks for spot ETPs, such as potential deviations in the price of ETP shares from the underlying assets, the lack of regulatory oversight, and fees that can reduce the value of shares over time. 

"Spot bitcoin or ether ETPs may have unique characteristics and heightened risks compared to other investments," the SEC warned. 

At the time of writing, the Bitcoin (BTC) price was $56,716.45, and the Ethereum (ETH) price was $2,346.68.