ALBANY, N.Y. (WROC) — After the cryptocurrency market hit concerning lows last month, New York Attorney General Letitia James issued a warning to New Yorkers Thursday regarding the risks of investing in these online currencies.
Cryptocurrencies are entirely digital currencies used primarily for investing and some online purchases. A relatively new invention, the very first virtual cash to come out was Bitcoin in late 2009.
Since then, there has been an explosion of thousands of different kinds of cryptocurrencies, with varying degrees of success and longevity.
While the crypto market is heralded by some as a stable place to invest, last month, both new and established digital dollars took a huge hit, costing investors hundreds of billions of real-world dollars.
To help New Yorkers make informed choices, Attorney General James compiled a list of concerns, potential problems, and other hazards to consider before filling your e-wallet with e-coins.
- Limited Oversight: Importantly, there are no federally regulated exchanges for crypto, meaning that trading platforms have little to no oversight. Trading platforms are based all around the world, and can be accessed from anywhere in the world. There are few legal recourse options available should you fall prey to scammers, or lose money through other experiences with cryptocurrency.
- Highly Speculative and Unpredictable Value: Because of how easy virtual currencies are to create and spread, their underlying value can vary quickly from currency to currency and from day to day. Princes can swing wildly and crash without warning. At times, price fluctuations are driven by market hype on various social media platforms.
- Difficulty Cashing Out Investments: During times of crisis and volatility, you may not be able to liquidate your investments, as certain platforms may halt trades or claim to experience technical difficulties. There is no guarantee that you will be able to liquidate your investments when you want — such as when the crypto markets begin to crash. During times of crisis, trading platforms may halt trading or purport to experience technical difficulties, preventing you from accessing your assets.
- High Transaction Costs: Some trading platforms charge high fees that can depend on the size of the transaction, the type of transaction, and when it occurs. It may cost you more to access your funds when you want them the most.
- Unstable “Stablecoins”: Despite the name, there is no guarantee that your stablecoin investment is any more stable or protected than any other virtual currency. The nature and quality of the assets backing stablecoins — if there are any — can vary greatly.
- Hidden Trading Costs: Due to the lack of regulation, some currencies may artificially prop up their value with automated trading. For example, a program may monitor when a trader makes a purchase, and buy ahead of the purchase to increase the price right before you finalize the trade.
- Conflicts of Interest: Many operators of virtual currency trading platforms trade on their own platforms without oversight. Their heavy investments may conflict with your interests, and/or result in investors receiving favorable treatment, such as private cash-outs away from the market.
“Over and over again, investors are losing billions because of risky cryptocurrency investments,” Attorney General James stated in a press release. “Too often, cryptocurrency investments create more pain than gain for investors. I urge New Yorkers to be cautious before putting their hard-earned money in risky cryptocurrency investments that can yield more anxiety than fortune.”