Borg: “Go beyond the headlines and hype to understand cryptocurrency investment risk.”
WASHINGTON, DC (January 4, 2018) – As cryptocurrencies continue to garner national and international headlines, the North American Securities Administrators Association (NASAA) today reminded Main Street investors to be cautious about investments involving cryptocurrencies.
“Investors should go beyond the headlines and hype to understand the risks associated with investments in cryptocurrencies, as well as cryptocurrency futures contracts and other financial products where these virtual currencies are linked in some way to the underlying investment,” said Joseph P. Borg, NASAA President and Director of the Alabama Securities Commission.
Cryptocurrencies are a medium of exchange that are created and stored electronically in the blockchain, a distributed public database that keeps a permanent record of digital transactions. Current common cryptocurrencies include Bitcoin, Ethereum and Litecoin. Unlike traditional currency, these alternatives have no physical form and typically are not backed by tangible assets. They are not insured or controlled by a central bank or other governmental authority, cannot always be exchanged for other commodities, and are subject to little or no regulation.
A NASAA survey of state and provincial securities regulators shows 94 percent believe there is a “high risk of fraud” involving cryptocurrencies. Regulators also were unanimous in their view that more regulation is needed for cryptocurrency to provide greater investor protection.
“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. “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.”
Last month, 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. Some tokens constitute, or may be exchangeable for a new cryptocurrency to be launched by the project, while others entitle investors to a discount, or early rights to a product or service proposed to be offered by the project.
NASAA has developed a short animated video to help investors understand the risks associated with ICOs and cryptocurrencies. NASAA first alerted investors of the risks associated with cryptocurrencies in 2014.
Common Cryptocurrency Concerns
|Some common concerns investors should consider before investing in any offering containing cryptocurrency include:|
Common Red Flags of Fraud
|NASAA also reminds investors to keep watch for these common red flags of investment fraud:|