Investors should be cautious about transactions involving cryptocurrency, state Attorney General Christopher Porrino warns.
“Cryptocurrencies may be the new rage when it comes to investments, but there are significant risks associated with transactions involving these predominantly unregulated currencies,” Porrino said. “Investors should fully understand the types of currency and transactions being pitched to them before agreeing to invest.”
Cryptocurrencies like Bitcoin, Ethereum and Litecoin, are a medium of exchange created and stored electronically in the blockchain, a distributed public database that keeps a permanent record of digital transactions.
The North American Securities Administrators Association, or NASAA, offers a short animated video to help investors understand the risks associated with initial coin offerings and cryptocurrencies.
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 survey of state and provincial securities regulators by the North American Securities Administrators Association, or NASAA, shows 94 percent believe there is a “high risk of fraud” involving cryptocurrencies, Porrino said.
“Because of the high risk of fraud and some projections of huge returns, investors must be on alert and not be tempted to invest in cryptocurrency-related investments without first vigorously vetting any transaction,” said Sharon M. Joyce, acting director of the Division of Consumer Affairs. “Understanding what is being sold is the best armor an investor has against fraud.”
Regulators also were unanimous in their view that more regulation is needed for cryptocurrency to provide greater investor protection.
“Transactions involving cryptocurrency are often complicated and confusing with an unproven track record,” said Bureau of Securities Chief Christopher Gerold. “They are not designed for investors with a low tolerance for risk or volatility. The best advice we can give is for investors to be completely aware of the risks before investing and act accordingly.”