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News Article

SEC Explains the Limitations of Bitcoin Trading in the NYSE

By Emilio Aristegui | Tue, 10/19/2021 - 17:43

A bitcoin-linked exchange-traded fund (ETF), the first in history, began trading in the New York Stock Exchange (NYSE) after the US Securities and Exchange Commission (SEC) gave a detailed explanation of the risks and objectives of this new fund.

The introduction of bitcoin is an unprecedented investment that could bring numerous risks for investors, explains the SEC. “Bitcoin and bitcoin futures are relatively new investments. They are subject to unique and substantial risks, and historically have been subject to significant price volatility.” The SEC is straightforward regarding the value of the investment, stating that it could decline without warning and might even reach zero in an extreme case. Also, the value of the fund may differ from the actual price of bitcoin, as the Commission states: “You should be prepared to lose your entire investment.”

The SEC clearly states that the newly-approved fund does not invest directly in bitcoin; its main objective is to provide capital appreciation through exposure to bitcoin futures contracts, according to an SEC press release. The cryptocurrency is currently not backed by any government, corporation or other identified body. As its value is determined by supply and demand, the SEC released important information to explain investors how the cryptocurrency works. “The SEC’s regulation of the securities markets facilitates capital formation, which helps entrepreneurs start businesses and companies grow,” reads SEC’s website.

The SEC also highlighted the capabilities of this fund and specified what actions can be taken with this contract. “The market for bitcoin futures may be illiquid. This means that the Fund may not be able to buy and sell bitcoin futures quickly or at the desired price.” The Chicago Mercantile Exchange (CME), also decided to set up important margin requirements for bitcoin futures at higher levels than usual margins for more established futures contracts.

The fund benefitted from a successful debut, as it rose by 5.4 percent as nearly 12 million shares worth nearly US$480 million were exchanged, according to data from Bloomberg.

The data used in this article was sourced from:  
SEC, BLOOMBERG, CME
Emilio Aristegui Emilio Aristegui Junior Journalist and Industry Analyst