Since I’m focused on investor protection, cryptocurrencies set off a lot of sirens. You can get easily get defrauded or ripped off.
With virtual currencies, you can’t put cryptos in your pocket or a bank vault. They exist as computer code on a hard drive or in cyberspace. That doesn’t mean that they can’t be stolen.
Keep in mind that no government agencies are regulating cryptocurrencies, which carry no deposit insurance or government guarantee.
But that doesn’t mean regulators aren’t warning about cryptos. There’s a lot you need to know to protect yourself.
There’s a “high risk of fraud” connected with cryptos, according to a recent study by the North American Securities Administrators Association (NASAA).
“The recent wild price fluctuations and speculation in cryptocurrency-related investments can easily tempt unsuspecting investors to rush into an investment they may not fully understand,” NASAA President Joseph Borg said.
“Cryptocurrencies and investments tied to them are high-risk products with an unproven track record and high price volatility. Combined with a high risk of fraud, investing in cryptocurrencies is not for the faint of heart.”
What do you need to know? Here are some red flags, as spotted by NASAA and other regulators:
– Watch out for ICOs. “NASAA identified Initial Coin Offerings (ICOs) and cryptocurrency-related investment products as emerging investor threats for 2018.
Unlike an Initial Public Offering (IPO) when a company sells stocks in order to raise capital, an ICO sells `tokens’ in order to fund a project, usually related to the blockchain. The token likely has no value at the time of purchase.”
– There’s no oversight or meaningful regulation. While Bitcoin is now listed on options and futures exchanges, there’s almost no regulation outside of that.
“Cryptocurrency is subject to minimal regulatory oversight, susceptible to cybersecurity breaches or hacks, and there may be no recourse should the cryptocurrency disappear…these accounts are not insured by the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits up to $250,000.”
– They are incredibly volatile. “The high volatility of cryptocurrency investments makes them unsuitable for most investors, especially those investing for long-term goals or retirement. Investors are highly reliant upon unregulated companies, including some that may lack appropriate internal controls and may be more susceptible to fraud and theft than regulated financial institutions.”
– Hackers are trying to steal cryptos 24/7. “Investors will have to rely upon the strength of their own computer security systems, as well as security systems provided by third parties, to protect purchased cryptocurrencies from theft.”
– Be cautious. In addition to NASAA, the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission have issued warnings.
“Investors should understand that to date no initial coin offerings have been registered with the SEC,” according to a statement issued by the agency.
“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.”
As with any investment, if you’re pressured to buy or something seems too good to be true, stay away from it. Just because it’s new and online doesn’t mean it’s legitimate. There are no guarantees in this market.
