WIMI

Are there any regulatory or compliance considerations related to the Bitcoin-related securities derivatives that could affect the company?

Created August 08, 2025 at 03:01 PM

Regulatory and compliance landscape for Wi‑Mi’s Bitcoin‑related securities‑derivatives holdings

WiMi Hologram Cloud Inc. (NASDAQ: WIMI) disclosed that its cash‑and‑cash‑equivalent portfolio now includes Bitcoin‑related securities derivatives worth roughly RMB 3.266 billion (US $455 million). While the press release frames the move as a “cash‑reserve” improvement, the fact that a publicly‑listed, U.S.‑listed company is holding crypto‑linked derivative instruments introduces a number of regulatory and compliance considerations that could materially affect the firm. Below is a comprehensive overview of the key regimes and obligations that Wi‑Mi must navigate, together with the practical implications for the company.

1. U.S. Securities‑Regulation (SEC)

Area	Why it matters for Bitcoin‑related securities derivatives	Practical impact for Wi‑Mi
Registration & Disclosure	Most Bitcoin‑related securities (e.g., futures, options, swaps, or tokenized securities) are defined as “securities” under the Securities Act of 1933 and the Exchange Act of 1934. The SEC requires registration of the securities themselves (or an exemption) and periodic reporting of material holdings.	Wi‑Mi must disclose the nature, fair‑value, and risk profile of these derivative positions in its Form 10‑K, 10‑Q, and any material event filings (Form 8‑K). If the derivatives are on a U.S.‑registered exchange (e.g., CME, Bakkt), the exchange’s reporting rules also apply.
Investment‑Company Act (Section 3(c)(1))	If the Bitcoin‑related securities are held in a “separate account” that meets the definition of an “investment company,” the company could be subject to additional reporting (Form N‑CSR) and governance requirements.	Wi‑Mi should confirm that the derivative holdings are not structured as a separate investment‑company vehicle; otherwise, it may need to file additional reports and adopt investment‑company governance standards.
Rule 144 and Market‑Manipulation	The SEC’s anti‑manipulation rules apply to securities trading, including crypto‑linked securities. Insider trading or “pump‑and‑dump” schemes in the underlying Bitcoin market could be deemed manipulation of the derivative.	Wi‑Mi must implement robust internal controls (e.g., pre‑trade approvals, monitoring of large positions) to avoid inadvertent participation in manipulative practices.
Sarbanes‑Oxley (SOX) Controls	Public companies must maintain internal controls over financial reporting (Section 404). Crypto‑derivative accounting can be complex, especially for fair‑value measurement and hedge accounting.	Wi‑Mi will need to document valuation methodology, control over data feeds (price sources), and periodic testing of the valuation model to satisfy SOX compliance.

2. U.S. Commodity‑Futures Regulation (CFTC)

Area	Relevance to Bitcoin‑related securities derivatives	Implications for Wi‑Mi
Definition of “Commodity”	Bitcoin is classified by the CFTC as a “commodity.” Futures, options, and swaps on Bitcoin are therefore regulated as commodity derivatives.	If Wi‑Mi holds CFTC‑regulated contracts (e.g., CME Bitcoin futures, Bakkt options), the company may be required to register as a “swap dealer” or “futures commission merchant” if the activity exceeds de‑ minim thresholds.
Position‑Limits & Reporting	The CFTC imposes position‑limit and large‑trader reporting rules for commodity derivatives.	Wi‑Mi must monitor its aggregate positions across all accounts and file CFTC Large‑Trader Reports (Form F‑L) if its holdings cross the reporting thresholds (e.g., 5,000 contracts for Bitcoin futures).
Anti‑Money‑Laundering (AML) & KYC	The CFTC’s “Regulation BSA” requires registered entities to implement AML programs, including customer identification and suspicious‑activity reporting.	Even though Wi‑Mi is an institutional investor, it must ensure that its counterparties (e.g., clearing houses, brokers) are AML‑compliant and that its own internal AML program covers crypto‑derivative exposure.
Margin & Capital Requirements	The CFTC and the Commodity Futures Trading Commission (CFTC) have margin‑setting authority for commodity derivatives.	Wi‑Mi must maintain sufficient collateral with clearing members and be prepared for potential margin calls, especially during Bitcoin’s high‑volatility periods.

3. International & Chinese Regulatory Considerations

Jurisdiction	Key regulatory framework	Effect on Wi‑Mi
People’s Republic of China (PRC)	The People’s Bank of China (PBOC) and the China Securities Regulatory Commission (CSRC) have historically banned crypto‑trading and restricted crypto‑related financial products for domestic institutions. However, holding foreign‑registered crypto‑derivatives (e.g., on overseas exchanges) is not expressly prohibited, provided the exposure is offshore and the company remains compliant with foreign regulations.	Wi‑Mi, a Chinese‑origin company listed in the U.S., must ensure that the derivative contracts are cleared and settled outside of China. Any on‑shore exposure could trigger regulatory scrutiny, possible fines, or forced divestiture.
Cross‑border capital controls	RMB‑denominated cash equivalents used to purchase foreign crypto‑derivatives may be subject to State Administration of Foreign Exchange (SAFE) reporting.	Wi‑Mi should maintain proper documentation of foreign‑exchange conversions and may need to file periodic SAFE reports for the outflow of RMB to purchase the derivatives.
Tax & Reporting	China taxes capital gains on crypto‑related assets at the individual level; corporate treatment is still evolving. The U.S. tax regime treats crypto‑derivatives as capital assets with specific reporting (Form 8949, Schedule D).	Wi‑Mi must reconcile dual‑tax reporting, ensuring that gains/losses are recognized in both jurisdictions and that any withholding or tax‑credit mechanisms are correctly applied.

4. Accounting & Financial‑Reporting Implications

Issue	Standard(s)	How it impacts Wi‑Mi
Fair‑Value Measurement	ASC 820 (U.S. GAAP) – Fair Value Measurement; IFRS 9 – Financial Instruments.	Bitcoin‑related securities derivatives are generally measured at Level 3 (unobservable inputs). Wi‑Mi must disclose the valuation technique, significant assumptions, and sensitivity analysis in the footnotes.
Hedge Accounting	ASC 815 – Derivatives and Hedging.	If Wi‑Mi intends to hedge cash‑flow or foreign‑exchange risk, it must formally designate the hedge, document the risk‑management objective, and test for effectiveness (≥80% in‑scope). Failure to meet the criteria results in non‑hedge accounting, causing volatility in earnings.
Impairment & Write‑Downs	ASC 320 – Investments – Debt and Equity Securities.	A significant decline in Bitcoin’s price could trigger impairment testing for non‑trading‑available‑for‑sale securities, potentially leading to a write‑down that impacts net income.
Disclosures	ASC 230 – Statement of Cash Flows; ASC 305 – Cash and Cash Equivalents.	The derivative holdings must be disclosed as part of “cash equivalents” only if they are highly liquid and have insignificant risk. Otherwise, they are presented separately as “financial assets” and may affect the classification of cash‑and‑cash‑equivalents.

5. Market‑Risk & Operational‑Risk Considerations

Volatility Risk – Bitcoin’s price can swing >30% in a single month. Large derivative positions can amplify earnings volatility and affect credit metrics (e.g., debt‑to‑EBITDA).
Liquidity Risk – Some Bitcoin‑linked securities (e.g., over‑the‑counter swaps) may lack a deep secondary market, making it difficult to unwind positions quickly.
Counterparty Risk – Exposure to crypto‑focused clearing houses (e.g., CME, Bakkt) or decentralized finance (DeFi) platforms introduces counterparty credit risk. Wi‑Mi should assess the credit‑rating and collateral‑management policies of each counterparty.
Cyber‑Security Risk – Crypto‑derivative positions often rely on digital wallets, API connections, and blockchain data feeds. A breach could result in loss of assets or manipulation of price data used for valuation. Robust IT‑security controls and third‑party risk assessments are essential.

6. Potential Scenarios that Could Disrupt Wi‑Mi’s Business

Scenario	Regulatory trigger	Potential outcome
Regulatory crackdown on crypto‑derivatives in the U.S. (e.g., SEC expands its definition of “digital asset securities” and requires stricter registration)	SEC enforcement actions, mandatory registration of the underlying securities, possible suspension of trading	Wi‑Mi may need to unwind positions, incur significant transaction costs, or face penalties for non‑compliance.
China imposes new restrictions on outbound crypto‑investment (e.g., tighter foreign‑exchange controls, mandatory reporting of crypto‑derivative exposure)	SAFE reporting, possible capital‑control penalties	Wi‑Mi could be forced to repatriate funds, re‑classify the assets, or limit future crypto‑derivative purchases.
CFTC introduces higher margin‑requirements for Bitcoin futures	Increased collateral demands, higher capital outlay	Cash‑reserve strain; may reduce the company’s ability to fund R&D or AR‑technology expansion.
Major cyber‑attack on a clearing house or price‑feed provider	Breach of data integrity, loss of market data	Valuation errors, potential misstatement of financials, breach of SOX controls, reputational damage.

7. Recommended Compliance‑Management Actions for Wi‑Mi

Regulatory Mapping – Create a cross‑jurisdiction matrix that links each derivative contract to the applicable regulator (SEC, CFTC, CSRC, SAFE, etc.).
Enhanced Disclosures – Update the next Form 10‑K/10‑Q with detailed footnotes on the nature of the Bitcoin‑related securities, valuation methodology, hedge designation, and risk‑management policies.
AML/KYC Program Extension – Ensure the AML program covers crypto‑derivative counterparties, including periodic “Know‑Your‑Counterparty” checks on exchanges and clearing houses.
Margin & Liquidity Monitoring – Implement daily margin‑call monitoring, stress‑testing for extreme Bitcoin price moves, and maintain a liquidity buffer separate from the derivative exposure.
Hedge Accounting Review – If the derivatives are used to hedge operating cash‑flows (e.g., to offset foreign‑exchange exposure), formally document the hedge relationship and test for effectiveness each quarter.
Cyber‑Security Controls – Adopt multi‑factor authentication for all crypto‑trading platforms, conduct quarterly penetration tests on API connections, and maintain an incident‑response plan for blockchain‑data‑feed disruptions.
Tax Coordination – Engage both U.S. and Chinese tax advisors to align the treatment of gains/losses, ensuring proper filing of Form 8949 (U.S.) and RMB‑based tax reporting in China, while monitoring for any double‑taxation treaty benefits.

Bottom line

Wi‑Mi’s exposure to Bitcoin‑related securities derivatives is not merely a balance‑sheet line item; it subjects the company to a multilayered regulatory regime spanning:

U.S. securities law (SEC) – registration, disclosure, anti‑manipulation, SOX.
U.S. commodity‑futures law (CFTC) – position‑limits, large‑trader reporting, AML.
Chinese cross‑border and foreign‑exchange controls – SAFE reporting, on‑shore vs. offshore exposure.
International accounting standards – fair‑value, hedge accounting, impairment.

Failure to proactively manage these obligations could lead to material compliance costs, forced unwinding of positions, or regulatory sanctions that would erode the cash‑reserve benefit the company touts in the press release. A disciplined, cross‑functional compliance program—integrating legal, treasury, tax, accounting, and cyber‑risk functions—is essential to ensure that the Bitcoin‑related securities derivatives enhance, rather than jeopardize, Wi‑Mi’s financial and operational standing.