We understand the appeal of investing in cryptocurrency such as Bitcoin and Ethereum, but that appeal should not blind you to the significant risks involved in cryptocurrency investing.
We have received multiple calls lately from investors ripped off by scams involving cryptocurrency. From our perspective, these scams are nothing more than the recycling of traditional scams that use cryptocurrency as the new hook. Cryptocurrency scams are popular now because most everyone has heard a story of someone getting rich from cryptocurrency in the last several years — which makes the scam more believable.
To minimize the chances that you get burned by a cryptocurrency investment, we recommend the following steps:
¦ Do research to determine how you want to invest in cryptocurrency. For example, do you want to invest in an ICO (initial coin offering) as opposed to the secondary market; and do you want to invest directly in a cryptocurrency or invest through an exchange with an ETF (exchange-traded fund) or fund of cryptocurrencies. Each carries their own levels and types of risks and you should decide this issue before you consider any sales pitch;
¦ If you do have an interest in investing based on a random cryptocurrency sales pitch (which we discourage), conduct independent due diligence research (not reliant on the representations of the salesperson or promotor) to determine whether there is anything suspicious about the investment or those pitching the investment. Independently research the promotors, the custodian, the strategy involved, and don’t let the salespeople and promotors explain away the red flags you find;
¦ Consider that even legitimate cryptocurrency investments carry unique risks not found in more traditional investments, including a greater risk of cybertheft, lack of regulation, lack of government support, lack of existence separate from the blockchain technology, storage risks, risks that much cryptocurrency ownership is highly concentrated, and limited use as a currency;
¦ And, keep in mind that beyond the unique risks of cryptocurrency, the traditional risks of investing in an obscure currency exists when you invest in cryptocurrency, including significant price volatility, potential lack of liquidity, and virtually all other traditional investment risks.
Remember, whatever it is, let’s make sure our money is working for us and not for somebody else. ¦
— Chris Vernon is a Naples attorney who represents investors in financial disputes throughout the United States. He is also licensed as a Registered Investment Advisor. Courts have accepted Mr. Vernon as an expert on investment related issues as both a lawyer and an investment professional.