Cryptocurrency investments are rising, but so are scams
While the popularity of cryptocurrency has exploded over the last decade, so has the prevalence of investment scams.
Cryptocurrency (crypto) is a computer-based digital currency that acts as a monetary system which can be exchanged for goods and services.
Exchanges with crypto are normally handled online between private parties, with no direct oversight.
“Typically, when we have our banking account we can look at what our account transactions are, but that‘s being monitored by our lender,” WI Bureau of Consumer Protection Director Michael Domke said. “With cryptocurrency, all of this is stored on what’s called a ledger, and theres a level of cryptography that basically encodes both the sender, the receiver, and the actual transaction information.”
Bitcoin was the first cryptocurrency back in 2009, but Division of Securities Director for the WI Department of Financial Institutions Robin Jacobs says there are now more than 7,000 in existence.
The rise in the amount of cryptocurrency has coincided with a substantial increase in value.
“As of November 2021, there were over 18.8 million Bitcoin in circulation, with a total market value of about $1.2 trillion,” Jacobs detailed.
Despite its popularity, Jacobs says cryptocurrency is a volatile system due to its lack of clear regulation.
“The IRS taxes Bitcoin as property, the CFTC (Consumer Futures Trading Commission) considers cryptocurrency to be a commodity, and the SEC (U.S. Securities and Exchange Commission) has taken the position that some transactions involving cryptocurrency are securities,” Jacobs explained.
The volatility brings with it an increased risk of financial loss for investors.
“Since October of 2020, the reports of fraud have skyrocketed with nearly 7,000 people reporting losses of more than $80 million on these scams,” Jacobs said. “In Wisconsin, in the last year-and-a-half, weve issued six orders against promoters of cryptocurrency scams.”
Both Jacobs and Domke say there are some clear signs investors can look for to avoid being scammed.
“If you‘re being solicited through an unknown email that says hey, we’ve got this new crypto and we‘ll offer you this incredible deal that’s going to double your money, those are the things you definitely want to shy away from,” Domke said.
“High pressure sales tactics are another red flag,” Jacobs added. “There shouldnt be a reason why you have to make a quick decision on how to invest your money.”
Domke says the best way to invest safely is to thoroughly research the cryptocurrency that you might be interested in.
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