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. 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, andcommodity 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 futurescontracts.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.
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.
The margin requirement for Bitcoin futures trading at CME is 50% of the contract amount, meaning you must deposit $25,000 in your margin account. You can finance the rest of the contract purchase by using leverage.
The U.S. Securities and Exchange Commission approved the first 11 Bitcoin spot ETFs in the United States on Jan.10, 2024. Bitcoin futures ETFs were already trading since 2021.
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.
To apply for futures trading approval, your account must have: Margin approval (check your margin approval) An account minimum of $1,500 (required for margin accounts.) A minimum net liquidation value (NLV) of $25,000 to trade futures in an IRA.
A micro futures contract is a smaller version of the same futures contract. This means they require significantly less capital to trade—which can help you speculate on the stock market and commodities at a lower initial cost.
[1] The approval order resolves the critical legal and regulatory issues entailed in launching a BTC ETF. Shares in trusts holding BTC can now be bought and sold on SEC-regulated exchanges, although other issues remain.
Bitcoin futures contracts trade on the Chicago Mercantile Exchange (CME), which introduces new monthly contracts for cash settlement. The CME offers monthly BTC futures contracts for six months and additional quarterly contracts for each of the four upcoming quarters.
This reference rate is called the bitcoin reference rate (BRR) and serves as a once-a-day reference rate of the USD price of one bitcoin. Investors can trade on the exchange from Sunday through Friday, 5pm to 4pm CST. A single bitcoin futures contract has a value of five times the BRR index.
Investors profit from Bitcoin futures by betting in the right direction for Bitcoin price movements. For example, if you'd opened a long position to buy Bitcoin, you're betting the price of Bitcoin will increase in the future. So you buy a contract to purchase Bitcoin at its current price, expecting the price to rise.
CME's Bitcoin futures contract, ticker symbol BTC, is a USD cash-settled contract based on the CME CF Bitcoin Reference Rate (BRR), which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin.
Futures-based ETFs differ from Bitcoin spot ETFs because they hold futures contracts, as their name indicates, instead of the underlying Bitcoin asset. Bitcoin futures contracts are legal agreements to buy or sell the cryptocurrency at a pre-specified price on a predetermined future date.
As an example, if Bitcoin is selling for $25,000, it will cost you $25,000 to purchase. With futures, you can often put up less than 5% of the overall value to control a larger position in a cryptocurrency futures such as Micro Bitcoin futures(Opens in a new window).
This can be a risky form of trading, but it also has the potential to generate large profits. If you are starting with a small amount of capital, such as $10 to $100, it is still possible to make money on futures trading.
Some small futures brokers offer accounts with a minimum deposit of $500 or less, but some of the better-known brokers that offer futures will require minimum deposits of as much as $5,000 to $10,000.
A pattern day trader who executes four or more round turns in a single security within a week is required to maintain a minimum equity of $25,000 in their brokerage account. But a futures trader is not required to meet this minimum account size.
Introduction: My name is Merrill Bechtelar CPA, I am a clean, agreeable, glorious, magnificent, witty, enchanting, comfortable person who loves writing and wants to share my knowledge and understanding with you.
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