Your Guide to Crypto-assets
Crypto-assets are a type of digital asset which utilize cryptography, peer-to-peer networking, and a public ledger to create new , and verify and secure transactions without a middleman or central bank. Crypto-assets often have one or more of the following properties:
- A medium of exchange (similar to fiat currencies);
- A function that is specific to the business or issuer; or
- An ownership or profit interest in a business .
A common type of crypto-asset are cryptocurrencies, which are digital mediums of exchange.
Risk Associated with Crypto-assets
Generally, there are liquidity, security and volatility risks associated with crypto assets, making it difficult for people to find a marketplace where they can buy and sell their holdings easily at a consistent price.
Furthermore, crypto-assets are created and circulated online. Companies and individuals may remain anonymous, easily mask their identity, or reside outside of the jurisdiction where you purchased the asset. This makes it difficult for you to pursue a legal remedy if you have an issue with the offering or those behind it.
Finally, no crypto-asset is guaranteed. You could lose all of the money you used to purchase the crypto-asset.
How Crypto-assets are Bought and Sold
Many crypto-assets aren’t currently regulated, which means that the purchase, transfer, and sale of them falls outside the protections that market governance affords. Crypto-assets are commonly made available through trading platforms, Initial Coin Offerings (ICOs) or Initial Token Offerings (ITOs), and funds.
Crypto-asset Trading Platforms
Online crypto-asset platforms, apps and exchanges (trading platforms) allow people to buy and sell crypto-assets. As discussed above, it’s important to know that crypto-asset trading platforms are often unregulated. As such, key investor protections may be missing from these trading platforms, including secure handling of client funds, safekeeping of assets, protection of personal information, pre-trade disclosures, measures against market manipulations, and other harmful practices.
The CSA has urged Canadians to be cautious when considering buying crypto assets through trading platforms.
Remember, if a trading platform facilitates the trading of, or interests in crypto-assets that are securities or derivatives, that trading platform must comply with securities legislation. If you come across a trading platform that you suspect is operating illegally, report it to the BCSC immediately.
Initial Coin Offerings (ICOs) and Initial Token Offerings (ITOs)
ICOs and ITOs are relatively new ways for to raise capital by offering crypto-assets – often structured as tokens or coins. You can learn more about ICOs and ITOs in the following InvestRight articles:
The British Columbia Securities Commission (BCSC) has noticed an increased number of crypto-assets offerings involving ICOs and ITOs. Read about this in our What do Crypto-asset owners Know about Their Investments post.
Cryptocurrencies are also sometimes available through cryptocurrency funds – funds which give investors access to cryptocurrencies without owning the coins directly. Cryptocurrency funds are susceptible to unique risks like market volatility, cyberattacks, limited-to-no regulation, and an underlying reliance on technology. These funds need to be managed by registered investment fund managers, or obtain exemptions from such registration, to do business in Canada.
Be an Informed Investor and Seek Help
When considering any investment, you should always:
- Read documentation about an investment offering to understand how the type of investment will be valued and used; and
- Consult your registered financial advisor when making investment decisions.
Your investment advisor will be able to answer your questions related to different investment types, and help you determine what types of investments suit your portfolio and financial goals. Your advisor will also help you understand the costs associated with your investments and different investment types, how they can affect your returns, and what level of risk is appropriate for you.
Here are some resources that offer further information related to crypto-assets:
- Things to Consider When Investing in a Trend (InvestRight)
- Caution urged for Canadians investing with crypto-asset trading platforms (InvestRight)
- Investor Alert: Cryptocurrencies (InvestRight)
Report a Concern
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.