In a public statement about cryptocurrencies like bitcoin and initial coin offerings or ICOs, SEC Chairman Jay Clayton urged investors to ask lots of questions and use common sense before investing, suggested that some products might not be legal.
"The technology on which cryptocurrencies and initial coin offerings are based may prove to be disruptive, transformative and efficiency enhancing," he said.
"I am confident that developments in fintech will help facilitate capital formation and provide promising investment opportunities for institutional and Main Street investors alike. I encourage Main Street investors to be open to these opportunities, but to ask good questions, demand clear answers and apply good common sense when doing so."
Market participants and their advisers, he added, "should thoughtfully consider our laws, regulations and guidance, as well as our principles-based securities law framework, which has served us well in the face of new developments for more than 80 years."
Trading in futures on bitcoin, perhaps the most prominent cryptocurrency, began Monday on the CBOE Futures Exchange.
Cryptocurrencies, said Mr. Clayton, present investors and other market participants with many questions:
Is the product legal? Is it subject to regulation, including rules designed to protect investors? Does the product comply with those rules? Is the offering legal? Are those offering the product licensed to do so? Are the trading markets fair? Can prices on those markets be manipulated? Can I sell when I want to? Are there substantial risks of theft or loss, including from hacking?
"The answers to these and other important questions often require an in-depth analysis, and the answers will differ depending on many factors," he said.
He said that simply calling something a "currency" or a currency-based product does not mean that it is not a security.