The Future of Finance? Or Fraud? Cryptocurrency Risks Explained

Welcome to the April 2022 edition of our newsletter!  In this issue, we’ll examine the risks involved when investing in cryptocurrencies, and what may lie ahead.

As Cryptocurrencies Gain Popularity, Schemes Targeting It Do Too

People have an intrinsic eye toward the future, and that’s even more true for investors.  From decentralized finance to warehouse robots, humanity seeks to evolve not just itself, but differing aspects of the world around it.

Over the last decade, one item that has evolved is cryptocurrency, the digital nature of which lends itself to being an instrument for various related frauds.  Many of these involve some aspect of social media, such as promoting a version of a Ponzi scheme where a fraudster touts having made huge gains in a crypto asset, then seeks to bring others in to share in the great gains.  Because cryptocurrencies are somewhat opaque in nature, such promises are nearly impossible to verify, and while a target may receive some initial gains to build trust, eventually they’re cleaned out.

Cryptocurrencies also lend themselves to being vehicles for other traditional schemes, like “pump and dump” investment trades, especially given the volatile nature of investing in a new, still speculative asset class.

What can investors do to protect themselves, at least until the U.S. authorities create a government-backed token?  Traditional due diligence measures still apply, especially given any referrals from less well-known sources such as social media.  Additionally, while agencies like the Federal Trade Commission and Securities and Exchange Commission find themselves working in an ever-changing regulatory landscape, it is prudent to see if any parties have been the subject of complaints to those agencies, or investigations by them.