Bitcoin is a “highly speculative” asset, the staff statement, published Tuesday by the Division of Investment Management, said. The note warned that investors in mutual funds that trade bitcoin futures may be taking on more risk than they’re aware of.

The warning comes as high profile funds from Morgan Stanley and BlackRock begin to diversify into bitcoin through adjacent products like cash-settled bitcoin futures and Grayscale’s Bitcoin Trust. Those bets represent major steps in the institutional adoption trend of the last 12 months. 

While aimed at investors in mutual funds, Tuesday’s note has implications for bitcoin ETFs, which crypto proponents have been hoping to see for years.

“The staff among other things expect to … consider whether, in light of the experience of mutual funds investing in the Bitcoin futures market, the Bitcoin futures market could accommodate ETFs, which, unlike mutual funds, cannot prevent additional investor assets from coming into the ETF if the ETF becomes too large or dominant in the market, or if the liquidity in the market starts to wane,” the note said.

A robust bitcoin futures market was key to launching an ETF, Bitwise Asset Management Chief Investment Officer Matt Hougan told CoinDesk in February.

Proponents expected newly-confirmed SEC Chair Gary Gensler to oversee the approval of an ETF.

On Thursday, Bloomberg ETF specialist Eric Balchunas said the prospect of an ETF “isn’t dead yet, but it just took a nasty blow to the head.”

Read more: Buying Your First Crypto? 10 Things You Should Know

SEC staffers will “closely monitor”’ mutual funds’ bitcoin positions with an eye toward ensuring investor protection, one of Gensler’s top priorities for the crypto space. 

“The staff welcomes further input from ETFs and other market participants, particularly input that focuses on efforts to ensure compliance with the Investment Company Act and its rules and promote investor protection,” the statement said.

That means analyzing market liquidity, how funds are valuing their holdings, what impacts their positions have on bitcoin futures and the market itself and assessing whether fraud and manipulation might be influencing price. 

BlackRock’s $27 billion Global Allocation Fund invested $6.5 million in bitcoin futures last year, for example. Morgan Stanley has also given a handful of its mutual funds permission to bet on cash-settled bitcoin futures, though it’s unclear if the mega-bank has made any allocations. 

UPDATE (May 11, 2021, 23:28 UTC): Added additional details and context.