There is cryptocurrency boom. Yes but it is not just Bitcoins but now hundreds of cryptocurrencies on the market. Bitcoin created in 2009, was the first decentralized cryptocurrency. Since then, numerous other cryptocurrencies have been created. These are frequently called altcoins, as a blend of alternative coin. They’ve been publicized as a fast and inexpensive way to pay online, but many are now also being marketed as investment opportunities. But before you decide to purchase cryptocurrency as an investment, here are a few important risks to know and things to keep in mind.
- Cryptocurrencies aren’t backed by a government or central bank. Unlike most traditional currencies, such as the dollar or yen, the value of a cryptocurrency is not tied to promises by a government or a central bank.
- If you store your cryptocurrency online, you don’t have the same protections as a bank account. Holdings in online “wallets” are not insured by the government like U.S. bank deposits are.
- A cryptocurrency’s value can change constantly and dramatically. An investment that may be worth thousands of dollars on Tuesday could be worth only hundreds on Wednesday. If the value goes down, there’s no guarantee that it will rise again.
- Nothing about cryptocurrencies makes them a foolproof investment. Just like with any investment opportunity, there are no guarantees.
- No one can guarantee you’ll make money off your investment. Anyone who promises you a guaranteed return or profit is likely scamming you. Just because the cryptocurrency is well-known or has celebrities endorsing it doesn’t mean it’s a good investment.
- Not all cryptocurrencies or the companies behind them are the same. Before you decide to invest in a cryptocurrency, look into the claims the company is making. Do an online search with the name of the company and the cryptocurrency with words like review, scam, or complaint. Look through several pages of search results
Investment opportunities that claim to be low risk and high reward almost always are frauds. When researching investments, turn to unbiased sources, like:
- the S. Securities and Exchange Commission
- your state securities regulator
- securities industry self-regulatory organizationslike the Financial Industry Regulatory Authority (FINRA), Amex, and Nasdaq
It’s important to have updated security software and practice basic computer/cell phone security on any device you use to access financial accounts.
Things to keep in mind before you decide to invest online
Never ever invest based solely on what you read in an online newsletter, bulletin board posting, or blog — especially if the investment involves a small company that isn’t well-known. It’s easy for a company or its promoters to make grandiose claims about new product developments, lucrative contracts, or the company’s financial health. Before you invest, you must independently verify those claims.
Many investment frauds, including online scams, involve unregistered securities — so always investigate before you invest. Offers to sell securities must be registered with the SEC or be eligible for an exemption, otherwise the offering is illegal. To see whether an investment is registered, check the SEC’s EDGAR database and call your state securities regulator for more information about the company and the people promoting it.
Fraudsters falsely assure you that an investment is properly registered with the appropriate agency and then give you a phone number so you can verify that “fact.” Sometimes they give you the name of a real agency, and sometimes make one up. But even if the agency does exist, the contact information they provide invariably is false. Instead of speaking with a government official, you’ll reach the fraudsters or their colleagues, who will give high marks to the company, the promoter, or the transaction.
Many fraudsters are repeat offenders. When the SEC sues a person or an organization, the agency issues a “litigation release.” For litigation releases going back to 1995, simply run a search for the promoter, his or her company or newsletter, the company being touted, and its officers and directors. You also can check out the person or entity promoting the opportunity by using FINRA ‘s free BrokerCheck service or by calling your state securities regulator.
Many small companies cannot meet the listing requirements of a national exchange. The securities of these companies trade instead in the “over-the-counter” (OTC) market and are quoted on OTC systems, like the OTC Bulletin Board or the Pink Sheets. Stocks that trade in the OTC market generally are among the most risky and most susceptible to manipulation.
Beware of promoters who pressure you to buy before you have a chance to think about and fully investigate an investment opportunity. Don’t fall for the line that you’ll lose out on a “once-in-a-lifetime” chance to make big money if you don’t act quickly.
If you have problems with your online investment account — or if you suspect an investment scam then file a complaint with the SEC using the agency’s Online Complaint Center. Include as many details as possible: a summary of the problem and the names, addresses, telephone or fax numbers, and email addresses or websites of any person or firm involved.