Cryptocurrency buyers warned by SEC

Last Updated Dec 12, 2017 1:51 PM EST

Online traffic to the Chicago Board Options Exchange's website is surging, mirroring the growing public interest in bitcoin and the digital currency's skyrocketing price.

The price of January bitcoin futures, which the exchange started trading this weekend, fell $245, or 1.3 percent, on Tuesday to $18,300, highlighting the cryptocurrency's extreme volatility. Such contracts let investors speculate on bitcoin by allowing them to lock in a price to sell the agreement at a future date. 

Bitcoin's price has soared more than 1,600 percent in 2017, and as of early afternoon was at $17,285, according to Coindesk. Other digital currencies have seen an even bigger jump in price. Ethereum has risen more than 6,100 percent this year to $636.49, while Litecoin has soared more than 9,000 percent.

A growing number of companies also are raising funds through "initial coin offerings," or ICOs, complete with celebrity endorsements ranging from boxing legend Floyd Mayweather to Hollywood star Jamie Foxx.    

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The startling run-up in prices for cryptocurrencies, which remain largely unregulated, has the Securities and Exchange Commission on its guard. The agency's chairman, Jay Clayton, is advising potential investors on to exercise caution.

"Investors should understand that to date no initial coin offerings have been registered with the SEC," he said in a statement Monday on the agency's website. "The SEC also has not to date approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies."

"If any person today tells you otherwise, be especially wary," Clayton added.

Anyone thinking of investing in an ICO or buying digital currency should ask a number of questions, according to the SEC. These include:

  • Is the product legal?  
  • Is it subject to regulation, including rules designed to protect investors?  
  • Does a given product comply with those rules?
  • Is a company offering an ICO or crypto product licensed to do so?
  • Are there substantial risks of theft or loss, including from hacking?

"Please also recognize that these markets span national borders and that significant trading may occur on systems and platforms outside the United States," Clayton said. "Your invested funds may quickly travel overseas without your knowledge. As a result, risks can be amplified, including the risk that market regulators, such as the SEC, may not be able to effectively pursue bad actors or recover funds."

Trading in bitcoin futures roared out of the gate on Sunday in their first day of trading on the CBOE, with the contract that expires in January rising as high as $18,850. The rival Chicago Mercantile Exchange is scheduled to start trading bitcoin futures on Dec. 18.