Go beyond the hype around cryptocurrencies and understand the risks they pose, the state Department of Financial Institutions advised investors in a news release Thursday.
The department issued the release to remind Wisconsin investors to be cautious about the mediums of exchange not backed by physical goods or government.
Cryptocurrencies are strictly digital assets, with the exchange record kept on a public ledger using blockchain technology.
One of the most popular cryptocurrencies, bitcoin, has rocked headlines with its roller coaster value in recent weeks.
“The recent price fluctuations in cryptocurrency-related investments can easily tempt unsuspecting investors to rush into an investment they may not fully understand,” Leslie Van Buskirk, administrator of DFI’s Division of Securities, said in the release. “Cryptocurrencies and investments tied to them are high-risk products with an unproven track record and high price volatility.”
The department warned that cryptocurrencies “cannot always be exchanged for other commodities, and are subject to little or no regulation.”
Nearly all — 94% — of state and provincial securities regulators said in a survey they believe there is “high risk of fraud” involving cryptocurrencies. The survey was done by the North American Securities and Administrators Association.
In addition to just buying and selling cryptocurrency, other financial products have emerged, such as cryptocurrency futures contracts.
The NASAA group identified initial coin offerings as an emerging investor threat in 2018. Like an initial public offering to raise money for a company by selling stock, the ICOs sell “tokens,” but DFI warns, it “likely has no value at the time of purchase.”
The department offered five concerns investors should consider before entering the cryptocurrency market:
- 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, 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.
This article was curated from Google News. You can read the original article here.