Bitcoin scams and high risk nature of crypto investments: You could lose all

The Financial Sector Conduct Authority (FSCA) is assessing how to regulate crypto asset investments, warning SA consumers of both high risks and scamsters in this space.

The authority said it is receiving a large number of complaints from local investors who have lost their savings through investing in a crypto-related investment that they did not understand, or a scam packaged as a crypto investment promising unrealistic high returns.

“Do not be afraid of being left out of the 'next big thing'," it advises.

“There are no safe 'quick rich' schemes in the world.

“The high risks already inherent in crypto assets are further being compounded by scam activity, as well as unregulated firms targeting consumers with marketing material that highlights the rewards, but not the potential downside, of investing in crypto assets.”

Cryptoassets, or cryptocurrencies as they are commonly called, are digital representations of value that are not issued by a central bank. Some of the more well known cryptoassets include Bitcoin (BTC) and Ethereum (ETH).

Crypto assets are traded, transferred and stored electronically. They have been used for payments, investments and capital-raising.

Crypto-related investments are, however, not regulated by the FSCA or any other body in SA. As a result, if something goes wrong, you’re unlikely to get your money back and will have no recourse against anyone.

The authority said consumers should understand what they are investing in and the financial risks involved, offering these tips:

• Crypto investment firms may be overstating potential payouts or understating the risks.

• Investing in crypto assets, or investments and lending linked to them, generally involves taking very high risks with investors’ money, which mean that you should be prepared to lose all of your money.

• Regardless of the level of risk which investors are prepared to accept, investors are urged to ensure that crypto assets, if purchased, should only make up a small proportion of their investment portfolio.

• You are urged to invest with open eyes as to the high risks involved, understanding that these type of investments are not appropriate for the vast majority of the South African population and that more appropriate and balanced investment products are available and offered by licensed financial service providers.

The FSCA said it is working at finding measures to regulate certain aspects and players in the crypto asset space.

These measures will be rolled out during the coming months.

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