Banking Dept. warns investors about risks of cryptocurrency

The Connecticut Department of Banking is warning investors about the dangers of investing in cryptocurrency.

Bitcoin, Ethereum, Litecoin, and others have become a consistent topic of headlines, but with no physical form or tangible assets behind them, cryptocurrencies are incredibly volatile.

The warning comes after Coincheck, one of the largest cryptocurrency exchanges in Japan, was hacked, costing the exchange $530 million.  The hack reportedly affected 260,000 investors.

“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,” said Commissioner Jorge Perez. He went on to describe investments in cryptocurrency as “not for the faint of heart.”

Nor should it be for the short on cash. The North American Securities Administrators Association identified cryptocurrency investments as an emerging investor threat for 2018. Though there are the lucky few who make a fortune via cryptocurrency, their high volatility makes them a bad idea for those investing for long-term goals or retirement.

Even Facebook has turned its back on the cryptocurrency market, banning ads related to cryptocurrency from its website.

The new policy states, “Ads must not promote financial products and services that are frequently associated with misleading or deceptive practices, such as binary options, initial coin offerings, or cryptocurrency.”

Common concerns with cryptocurrency are minimal regulation, no form of insurance from any federal agencies, high volatility, susceptibility to fraud, and minimal security.

“Investors should go beyond the headlines and hype to understand the risks associated with investments in cryptocurrencies,” Perez said.

The Department of Banking said to watch for common signs of investment fraud. Investors should be skeptical of guaranteed high investment returns, unsolicited offers, pressure to buy immediately, unlicensed sellers, and the “too good to be true” syndrome — if something sounds too good to be true, it probably is, the department said.

Originally published by the Journal Inquirer.