As you’re probably aware, authorities are just as confused about cryptocurrencies as everyone else is.
The U.S. regulatory apparatus has demonstrated the same schizophrenia with regard to how to approach Bitcoin and other digital currencies as that exhibited by Wall Street, with the latter looking ready to take the plunge one minute (see Goldman’s mad dash to launch a crypto trading desk) and gun shy the next (see Merrill’s ban on trading in GBTC and Bitcoin futs).
Although the CFTC gave the go-ahead for Bitcoin futures (which launched last month to much fanfare even if the follow-through has been somewhat lackluster), regulators have generally adopted a cautious tone when it comes to communicating the risks to the public. For their part, the SEC has been very deliberate in their approach to Bitcoin ETFs (more on that here).
The cognitive dissonance both among regulators and on the Street stems from the fact that protecting the public (in regulators’ case) and covering one’s own ass (in the case of the big banks) necessarily means being slow to adopt something that is moving at warp speed and which proponents say is on the fast track to changing the way the world thinks about money. In short: you know it’s dangerous, but you also know it’s becoming ubiquitous, so it’s hard to figure out whether to run as fast as you can in the other direction or jump on board immediately in order to avoid looking like an old man screaming at the neighborhood kids to get off his lawn.
Well on Thursday, the SEC is out with a fresh warning for cryptocurrency investors.
“We commend the North American Securities Administrators Association (NASAA) on their release highlighting important issues and concerns related to cryptocurrencies, initial coin offerings (ICOs) and other cryptocurrency-related investment products,” the commission writes, referencing the NASAA communiqué embedded below. The SEC adds the following:
The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment.
The full SEC press release is below as is the NASAA communiqué. Feel free to completely ignore them on your way to taking more risk you don’t understand.
Via the SEC
Chairman Jay Clayton
Commissioner Kara M. Stein
Commissioner Michael S. Piwowar
Jan. 4, 2018
We commend the North American Securities Administrators Association (NASAA) on their releasehighlighting important issues and concerns related to cryptocurrencies, initial coin offerings (ICOs) and other cryptocurrency-related investment products.
NASAA’s release is a timely and thoughtful reminder to Main Street investors to exercise caution. The release recognizes that cryptocurrencies, while touted as replacements for traditional currencies, lack many important characteristics of traditional currencies, including sovereign backing and responsibility, and now are being promoted more as investment opportunities than efficient mediums for exchange.
The NASAA release also reminds investors that when they are offered and sold securities they are entitled to the benefits of state and federal securities laws, and that sellers and other market participants must follow these laws. Unfortunately, it is clear that many promoters of ICOs and others participating in the cryptocurrency-related investment markets are not following these laws. The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment.
We encourage investors to read NASAA’s release and particularly to keep in mind the common red flags of investment fraud that the release reiterates. We also encourage investors to review the SEC investor bulletins, alerts, reports, and statements linked below.
- SEC Chairman Jay Clayton Statement on Cryptocurrencies and Initial Coin Offerings (Dec. 11, 2017)
- SEC Division of Enforcement and SEC Office of Compliance Inspections and Examinations Statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities and Others (Nov. 1, 2017)
- Investor Alert: Public Companies Making ICO-Related Claims (Aug. 28, 2017)
- Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (July 25, 2017)