CFTC warns of Bitcoin-futures dangers, after allowing them

Bitcoin is going mainstream via the futures market, and the U.S. regulator that allowed it to happen has a message: buyer beware.

The US Commodity Futures Trading Commission issued a statement detailing “the risks of virtual currency trading” and urged investors to educate themselves before buying into an asset class that has surged more than 1,700 per cent this year.

The warning underscores that even as Washington makes it easier for bitcoin to move out of the shadows, worries remain that the mom-and-pop investors who’ve helped fuel its rise have little idea what they’re jumping into. Some of the biggest names in finance have called the digital currency everything from a massive bubble to an outright fraud.

Two weeks ago, the CFTC enabled a watershed for bitcoin by announcing that CME Group  and Cboe Global Markets would start offering bitcoin derivatives: a move that has helped fuel an 80 per cent jump in the spot market.

Although the futures products didn’t technically require regulatory approval, the CFTC could have stymied the exchanges’ plans if it wasn’t satisfied with them. The agency let them go forward, and trading on the CME is set to start Sunday after a Cboe contract listed earlier this week. The exchanges got the green light after going through a process called self-certification — a pledge to the CFTC that the contracts don’t run afoul of the law.

“Like all futures products, speculating in these markets should be considered a high-risk transaction,” the CFTC said. “Customers should inform themselves as to how the index or auction prices used to settle the contract are determined.”

In addition to warning about the futures market, the CFTC also listed dangers on the spot market which include: manipulation, hacking of customer wallets, lack of regulation and volatility.