Should you or shouldn’t you buy the latest new cryptocurrency or token? I can’t tell you how many people have come up to me and asked if they should invest in bitcoin. I recently conducted an investor education program at a retirement community and a woman said to me,“My children keep telling me I need to hurry up and invest in bitcoin BTCUSD, +1.69% —is it safe, have I already missed the boat?”
Seniors are not the only ones interested in bitcoin and other cryptocurrency-related investments. Millennials are also jumping on the bandwagon. While I can’t give investment advice about bitcoin or any other cryptocurrency-related investment or product, I can provide advice on some things you should consider when deciding if an investment is right for you.
Perhaps the most important thing to know is the cryptocurrency-related investment markets are very different than our regulated securities markets. For example, our securities laws provide important protections that you may not be getting when dealing in cryptocurrency-related investments. In many cases you may not know exactly who you are dealing with, where your money is going or what you are getting in return. For more detailed information, you can check out SEC Chairman Jay Clayton’s statement on cryptocurrencies and initial coin offerings (ICOs) and the Office of Investor Education and Advocacy’s investor bulletin on ICOs.
These digital assets have been trending and receiving the attention of celebrities, often through endorsements. You may see them on social media, radio or TV promoting bitcoin and a variety of other products and services. Never make an investment decision based solely on celebrity endorsements. Just because your favorite celebrity says a product or service is a good investment doesn’t mean it is. Always do thorough, independent research of the product.
Trendy investments are especially ripe for fraudsters so be aware there is a real risk of fraud. Scam artists prey upon the newness of an investment opportunity when there isn’t as much history about the product. It’s also easier to sell an investor on an “everyone is buying it” sales pitch when there’s a lot of buzz about a certain investment product. The pressure to buy the product right away mounts.
Don’t fall for high-pressure sales tactics, the promise of guaranteed returns or too good to be true claims. You should check out the red flags of investment fraud on Investor.gov as well as check to see if the investment professional you’re dealing with is registered. Take time to make the right investment decision for you. Ask questions and demand clear answers. You can find sample questions, such as “Who exactly am I contracting with?” and “What will my money beused for?” here.
You should understand if you lose money there is a real chance the SEC and other regulators won’t be able to help you recover your investment, even in cases of fraud.
If you do choose to purchase digital currencies or tokens, recognize that they are new. There may be significant risk involved in putting your money into something that hasn’t been around very long. A good rule of thumb when investing in a new product is to only invest money that you are willing to lose, so that it’s not financially devastating if the investment doesn’t pan out.
One way to spread risk is to diversify your investments. Don’t put all of your eggs in one basket. That way, if one of your investments loses money, the other investments can make up for it.
Cryptocurrencies may be today’s shiny, new opportunity but there are serious risks involved. Proceed with caution, do your research, evaluate your financial goals and most importantly, don’t flip a coin when you’re making investment decisions.
Before you invest, go to Investor.gov to learn how to invest wisely and avoid fraud.
Lori Schock has served since 2009 as the director of the Securities and Exchange Commission’s Office of Investor Education and Advocacy (OIEA) — the Commission’s champion in providing America’s investors with the tools and information they need to make wise investment decisions and avoid fraud.
The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This article expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.