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SEC Warns Against Bitcoin: Limited Investor Protection In Crypto

The Securities and Exchange Commission has been wading into the fray over cryptocurrencies more and more often. This time, the SEC warns against bitcoin and other cryptocurrencies by reminding investors to approach all such digital investments with caution.

sec warns against bitcoin
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SEC warns against bitcoin by siding with NASAA

The SEC warns against bitcoin and also related investments, including other cryptocurrencies and initial coin offerings (ICOs) and related digital coin investment products. SEC Chairman Jay Clayton and Commissioners Kara Stein and Michael Piwowar officially applauded the North American Securities Administrators Association’s call to approach them with caution.

In their own press release, they highlighted NASAA’s press release as “a timely and thoughtful reminder to Main Street investors to exercise caution.” They note that although cryptocurrencies are being touted as replacements for fiat currencies, they lack most of the characteristics of traditional money, such as “sovereign backing and responsibility.” Further, cryptocurrencies are now “being promoted ore as investment opportunities than efficient mediums for exchange,” the SEC officials state.

Limited protections for cryptocurrency investors

The SEC warns against bitcoin and other cryptocurrencies also by calling attention to the lack of protection for those who invest in cryptocurrencies. The officials note that investors who buy and sell securities are protected by state and federal laws, as sellers and other participants in the market are required to follow these securities laws.

However, SEC officials add that it’s “clear that many promoters of ICOs and others participating in the cryptocurrency-related investment markets are not following these laws.” The SEC and state security regulators are currently pursing some violations against alleged violators, the agency added, but investors who lose money on crypto-related investments face a “substantial risk that our efforts will not result in a recovery of your investment.”

Move past the hype

In a statement, NASAA President Joseph Borg summed up the caution investors should have when it comes to crypto-investments:

“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,” Borg explained in the release referred to by SEC officials.

For now, the SEC warns against bitcoin and other crypto-investments in the only ways it can, by educating investors and pursuing anyone operating an illegal scheme of some sort or taking advantage of investors.

For example, the SEC suspended trading on The Crypto Co last month due to concerns about the “accuracy and adequacy” of information about the firm. That suspension was due to end on Wednesday, but the shares still aren’t available for trading. There have also been other suspensions and regulatory news regarding various crypto-related firms.

Sitting ducks?

Unfortunately, the nature of crypto-investments makes some of those who purchase them essentially sitting ducks for con artists.

“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 in a statement. “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.”

NASAA put together a video about cryptocurrencies to help investors better understand what they might be getting into by purchasing any of them. You can also check out the lengthy press release referred to when the SEC warns against bitcoin and other digital currencies here.