The Arizona Corporation Commission has issued an investor alert cautioning investors to consider the risks associated with virtual currency offerings. Virtual currency is an electronic medium of exchange including cryptocurrencies, such as bitcoin, Ethereum, and litecoin. The alert was issued in association with the North American Securities Administrators Association.
While such currencies may provide fair and lawful investment opportunities, there are risks involved which should be considered prior to any investment.
Unlike traditional currency, these alternative investments typically are not backed by tangible assets, are not issued by a governmental authority, and may be subject to little or no regulation. The value of cryptocurrencies is extremely volatile. They are vulnerable to sharp changes in price due to unexpected events or changes in market sentiment.
The Corporation Commission urges investors to avoid investing more than they can afford to lose into this type of risky investment. Some common concerns investors should consider:
• Virtual currency is subject to minimal regulation, susceptible to cyber-attacks and there may be no recourse should the virtual currency disappear.
• Virtual currency accounts are not insured by the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits up to $250,000.
• Investments tied to virtual currency may be unsuitable for most investors due to their volatility.
• Investors in virtual currency will be highly reliant upon unregulated companies that may lack appropriate internal controls and may be more susceptible to fraud and theft than regulated financial institutions.
• Cryptocurrency owners may experience difficulty or delays in liquidating their holdings or transferring them back into cash.