As of this writing, the alt-coin Ethereum has experienced returns of more than 10,800% over the last 12 months, more than 130% over the last month, and more than 30% over the last week alone.
A single Bitcoin, which could be had for less than $1,000 one year ago, is now pushing $15,000. Meanwhile, companies leveraging the blockchain technology employed by cryptocurrencies are on the rise too. UBI Blockchain, which claims to be developing a blockchain-based product-tracking system, rose more than 2,000% over the last year.
Those are drool-worthy numbers for any investor. Certainly, for the Main Street investors that the Securities & Exchange Commission has committed to protecting, the FOMO (fear of missing out) that 10,000% returns inspire could be too much too resist. It’s understandable, then, that the SEC has begun 2018 by pumping the brakes on crypto fever. In the new year, it has already taken two actions to deter the swindling of market participants eager to get involved in crypto-related investments.
First, the SEC gave a ringing endorsement to a Jan. 4 statement by the North American Securities Administrators Association on cryptocurrencies, initial coin offerings and other cryptocurrency-related investments. NASAA, the voice of state-level securities administrators in the United States, laid out a litany of concerns associated with cryptocurrency investments, including:
- They are not backed by tangible assets;
- They are not insured by the FDIC;
- Cryptocurrencies are not controlled by a central bank, and are subject to “minimal regulatory oversight”;
- Crypto-related investments are subject to high volatility; and
- Investors must rely on their own IT security, and that of third parties, to protect their cryptoholdings from theft.
With its statement, the NASAA joins the Financial Industry Regulatory Authority (FINRA), which sent out a similar word of warning—focused on public stocks—in late December. Encouraging investors to look beyond the tantalizing numbers, NASAA provided a list of red flags that investors should be aware of as symptoms of fraud in crypto-related investments. The red flags it identified are:
- Guaranteed high investment returns;
- Unsolicited offers, especially those promoted aggressively through social media;
- Investment schemes that “sound too good to be true”;
- Pressure to buy immediately; and
- Unlicensed sellers of securities and unregistered firms.
NASAA President Joseph Borg summed it up fairly neatly by saying: “Cryptocurrencies and investments tied to them are high-risk products with an unproven track record and high price volatility. Combined with a high risk of fraud, investing in cryptocurrencies is not for the faint of heart.” While endorsing the NASAA’s words of caution, the SEC affirmed that cryptocurrency investments are subject to state and federal securities laws, and that “[u]nfortunately, it is clear that many promoters of ICOs and others participating in the cryptocurrency-related investment markets are not following these laws.”
The SEC also halted trading in UBI Blockchain, the self-described product-tracking company. The SEC said that it suspended trading in UBI due to questions that it had about the truth of statements that the UBI made “regarding the company’s business operations” in filings with the SEC, and also because of unusual activity in the company’s stock. This particular action by the SEC is less a new development than a continuation of a trend from last year. The freeze in UBI’s stock comes after similar freezes in The Crypto Company and First Bitcoin Capital, among others, last year.
In the month before trading in its stock was suspended, The Crypto Company was up 1,800% and had reached a market cap of more than $11 billion. As we move further into 2018, we can expect the SEC to be increasingly watchful over any companies involved in bitcoin activity. Investors: be warned. If it’s too good to be true, then it probably is.