Regulator flags cryptocurrency investment risks

Regulator flags cryptocurrency investment risks | Smart Association - PCMA

Regulator flags cryptocurrency investment risks
For those wanting to take part in the cryptocurrency craze, the North American Securities Administrators Association (NASAA) advised potential investors to look beyond the hype and proceed with caution.

NASAA president and director of Alabama Securities Commission Joseph Borg said investors should understand the risks associated with investments, or any financial products, linked to cryptocurrencies like Bitcoin, Ethereum, and Litecoin.

“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,” Borg said.

He added: “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.”

It seems like regulators are the most doubtful when it comes to these virtual currencies, with 94% believing there is a "high-risk fraud" involved, according to a NASAA survey. The poll also revealed that regulators unanimously agreed that more regulation is needed for cryptocurrency to provide greater investor protection.

Following a report where NASAA tagged Initial Coin Offerings (ICOs) and cryptocurrency-related investment products as emerging investor threats for 2018, the regional regulator launched a list of common cryptocurrency concerns and red flags of fraud concerning virtual currencies. Check out the list below:

Common Cryptocurrency Concerns
  • Cryptocurrency is subject to minimal regulatory oversight, susceptible to cybersecurity breaches or hacks, and there may be no recourse should the cryptocurrency disappear.
  • Cryptocurrency accounts are not insured by the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits up to $250,000.
  • The high volatility of cryptocurrency investments makes them unsuitable for most investors, especially those investing for long-term goals or retirement.
  • Investors in cryptocurrency 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.
  • 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.

Common Red Flags of Fraud
  • “Guaranteed” high investment returns. There is no such thing as guaranteed investment returns, and there is no guarantee that the cryptocurrency will increase in value. Be wary of anyone who promises a high rate of return with little or no risk.
  • Unsolicited offers. An unsolicited sales pitch may be part of a fraudulent investment scheme. Cryptocurrency investment opportunities are promoted aggressively through social media. Be very wary of an unsolicited communication—meaning you didn’t ask for it and don’t know the sender—about an investment opportunity.
  • Sounds too good to be true. If the project sounds too good to be true, it probably is. Watch out for exaggerated claims about the project’s future success.
  • Pressure to buy immediately. Take time to research an investment opportunity before handing over your money. Watch out for pressure to act fast or “get in on the ground floor” of a new tech trend.
  • Unlicensed sellers. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms. Check license and registration status with your state or provincial securities regulator.