The North American Securities Administrators Association warned Main Street investors to be wary of 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. According to a NASAA survey, 94 percent of state and provincial securities regulators believe there is a “high risk of fraud” involving cryptocurrencies. Regulators also believe more regulation is needed of cryptocurrencies 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.”
Shortly afterwards, the US Securities and Exchange Commission issued a warning of its own. “Unfortunately, it is clear that many promoters of initial coin offerings [ICOs] and others participating in the cryptocurrency-related investment markets are not following [securities] laws,” agency leaders said. Regulators are pursuing violations, but “if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment,” they added.
Jaret Seiberg, an analyst with the Cowen Washington Research Group, said in a client note that the warnings are “the clearest sign yet that Washington is looking to further regulate cryptocurrencies.” And that most likely means new disclosures and security safeguards are coming. That being said, he still thinks that “the government will crack down on cryptocurrencies, which likely means regulations that could threaten the viability of ICOs and other digital currency investments.”
While investors certainly need to do their due diligence, investing in products such as Bitcoin IRAs, which are held by established financial custodians and which feature multiple levels of security to safeguard customer assets, is far safer than striking out on your own and investing thousands of dollars in cryptocurrencies on an exchange that may be based in Eastern Europe, the Caribbean, or Asia. While cryptocurrencies have always had their critics, there is no indication that US federal regulators will be cracking down on Bitcoin or other cryptocurrencies any time soon. That horse has already left the barn.
While there are indications that South Korea may try to ban cryptocurrency trading, and that China is cooling to cryptocurrency mining, that will just push more cryptocurrency business to the US and other countries that retain a light regulatory touch. South Korean and Chinese investors’ losses will be US investors’ gain.