Crypto assets include cryptocurrencies, blockchain companies, cryptocurrency funds, and initial coin offerings (ICOs). These assets are a hot topic in the financial sector, but not all are securities.
This article and video from BCSC InvestRight explains four basic types of crypto assets. You will also learn how to avoid crypto asset scams.
What are Crypto Assets?
You may know of specific examples that relate to:
- Buying or trading cryptocurrencies
- Startup companies raising capital through ICOs
- Investing in companies that want to bring blockchain to other industries
- Cryptocurrency funds offering exposure to this new area of investments
In these examples, not all crypto assets are securities. The British Columbia Securities Commission (BCSC) only regulates crypto assets that are considered securities under B.C. laws.
If you invest in an asset that is not a security, you may not be protected under the Securities Act.
The Risks of Investing in Crypto Assets
All investments have risks. Crypto assets are fairly new and therefore have minimal track records. It may be hard to assess the value and risk of a crypto asset investment.
A qualified, independent third party can help you assess if the crypto asset is the right investment for your portfolio.
Consider the following points if you’re looking at a crypto asset investment:
- The hype around cryptocurrencies, blockchain, and ICOs may cause quick decisions or purchases of unsuitable investments.
- Crypto assets can be highly speculative. Research the basis of the asset’s value and know the factors that may cause its price or value to change.
- Understand the business and risks of the crypto asset, and recognize that there may not be any formal disclosure of these facts before investing.
- Never invest more than you can afford to lose.
Protect Yourself from Crypto Asset Scams
Scams have emerged that take advantage of the virtual nature of crypto assets, lack of investor protection, and hype around crypto-related topics.
To avoid crypto asset scams, consider all of the risks and understand the asset before choosing to invest. You can also consult BCSC InvestRight’s Fraud Warning Signs, which are guidelines to identify fraudulent investment offers.
The Fraud Warning Signs include:
- Promises that the investment has no risk and/or guaranteed returns
- Exclusive opportunities to make money that few people know about
- Explanations of tax benefits that come with investing money in offshore locations
- Pressure to make a quick decision and invest now
- Targeting your friends and family with similar investment offers to gain your trust
The North American Securities Administrators Association (NASAA) released advisories about ICOs and crypto assets to help investors recognize and reject scams.
Read the NASAA Informed Investor Advisories:
- NASAA: Informed Investor Advisory: Cryptocurrencies
- NASAA: Informed Investor Advisor: Initial Coin Offerings
What is a Cryptocurrency?
Cryptocurrencies are a form of digital medium of exchange that use complex codes or cryptography for creation and protection. Cryptocurrencies are not backed by any government or central bank, and may not be subject to securities regulations.
Some exchanges can facilitate cryptocurrency trading. Often these exchanges operate without any government oversight, which can create additional risks for investors.
What is a Blockchain-based Business?
Blockchain is a digital ledger that records and shows all transactions in the system. Blockchain-based businesses use this technology to benefit industries and stakeholders, potentially beyond crypto assets.
What is a Cryptocurrency Fund?
Cryptocurrency investment funds give investors access to cryptocurrencies without owning the coins directly. These funds need to be managed by registered investment fund managers, or obtain exemptions from such registration, to do business in Canada.
What is an Initial Coin Offering (ICO)?
Initial coin offerings, or ICOs, are a new way to raise money for a blockchain-based business using cryptocurrencies. ICOs resemble other forms of crowdfunding because large groups of people are able to buy into the offerings.
To run an ICO, a company sells its own coins or token to the public. Often the ICO is explained in a white paper or article describing its plans and uses. ICO issuers create digital coins that have a range of uses.
If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Inquiries at 604-899-6854 or 1-800-373-6393 or through e-mail at [email protected] You can also file a complaint or submit a tip anonymously using the BCSC’s online complaint form.
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Read the disclosure and understand the risks