As an attorney who has represented investors all over the United States, I have seen many retail investors suffer financial devastation from bad investment products or strategies. However, our law firm has rarely seen such financial carnage such as that we are currently seeing in cryptocurrency “investments.” We put “investments” in quotes because we do not necessarily consider purchasing and selling cryptocurrencies to be an investment, though we recognize that many people are purchasing larger sums as of recent. Without endorsing any investment whatsoever in cryptocurrency, fully consider the following before deciding to “invest” in cryptocurrencies.
Initially, you need to keep in mind that cryptocurrencies are digital asset. So, from that perspective, purchasing cryptocurrency is akin to using dollars to purchase some foreign currency that fluctuates wildly in value on a daily basis. For example, over the last twelve months, Bitcoin’s price has fluctuated between approximately $73,000 and $27,000, and continues to fluctuate on a daily basis. This is further evidence that cryptocurrency “investing” is highly speculative and not a legitimate, long-term (or even short-term) investment strategy.
Separate and apart from the speculative nature of cryptocurrencies, it carries the following unique risks not found in most traditional investments:
- greater risk of cyber-theft;
- lack of government regulation;
- lack of government support;
- lack of existence separate and apart from blockchain technology;
- storage risks, including that cryptocurrency ownership tends to be highly concentrated; and
- limited use as a medium-of-exchange.
Lastly, investing in cryptocurrency carries a far greater risk of loss than traditional investments due to cryptocurrencies’ susceptibility to scams. Recently, we have seen an increase in cyber-criminals located around the world taking advantage of the rising popularity of cryptocurrencies and its unique characteristics to exploit retail and institutional investors for profit. Cyber criminals prefer crypto as opposed to traditional fiat currencies because of the promise of anonymity, the ability to transfer funds globally, easily, and quickly, and the lack of government oversight and/or regulations, all of which have created an opening for widespread fraud.
Although there are plenty of scams in traditional investments, we are seeing far more successful scams in the cryptocurrency space. One reason being the allure of getting rich from cryptocurrency, as almost everyone has heard a story about someone getting rich from cryptocurrency in the last couple years. This certainly makes the scam more appealing and believable in the eyes of a victim.
Based on the foregoing, we do not believe that cryptocurrencies can legitimately be called an investment and, even if you disagree, you should never “invest” more in cryptocurrency than you can afford to lose.
At Vernon Litigation Group, we understand the intricacies of digital assets, and are here to assist you in navigating this evolving landscape. Contact me, Benny Carollo Jr., today to learn more about what our skilled crypto attorneys can do for you.