Crypto assets are digital assets that use cryptography (a method to secure data), peer-to-peer networking, and a public ledger to create, verify and record transactions.
Crypto assets include cryptocurrencies, blockchain companies, cryptocurrency funds, and initial coin offerings (ICOs). In recent years, certain crypto assets have generated a lot of interest from investors and the financial media. These products are considered high-risk because of their speculative nature.
Many people use the term “cryptocurrencies” when referring to crypto assets. However, while many crypto assets are digital mediums of exchange (and therefore act similar to currencies), not everything that is referred to as a cryptocurrency is a digital medium of exchange, but could be a crypto asset with other properties.
What are the Risks?
Crypto assets have a number of common and specific risks, depending on the asset.
Generally, there are liquidity, security, and volatility risks. Some crypto assets have no secondary market, which may make it hard to sell your holdings or track prices.
Crypto asset exchanges and trading platforms are often unregulated. Key investor protections may be missing from these trading platforms and exchanges, including secure handling of client funds, safekeeping of assets, protection of personal information, pre-trade disclosures, measures against market manipulations, and other harmful practices.
Changes in the crypto asset space are constant, and prices may change with little warning or news disclosed to investors.
The digital nature of this type of investment presents an international scope, which can challenge investors to get enough information, communicate with the issuer, or seek help from a securities regulator.
No crypto asset investment is guaranteed. You could lose all your money.
|Initial coin offerings (ICOs)||
How Are Crypto Assets Bought and Sold?There are many ways that you can buy, sell, and store crypto assets. For instance, you can buy crypto assets directly (e.g. in a peer-to-peer or P2P manner), and you can hold them in digital wallets that you maintain sole access to. Digital wallets are encrypted with a password, and that may lead to a greater sense of security for investors; however, there have been instances where people have forgotten their passwords or deleted their wallets, and locked themselves out of accessing their invested dollars. As well, depending on how secure your wallet or what your password is, there is the possibility that either can be hacked, and the hacker can gain access to the crypto assets stored within.
Can You Sell Them Easily?Not all crypto assets are liquid, meaning it may be difficult to sell your holdings for cash in a short amount of time. There may also be limits, holds, and transaction fees that are hard to know about before selling a crypto asset.
What are the Costs?Some crypto assets incur trading fees and other charges. There is no standard for the level of fees charged to trade or own a crypto asset.
What are the Expected Types of Returns?The speculative and volatile nature of crypto assets can cause returns to vary significantly. Crypto assets have the potential to lose large amounts of value in ways that may seem unpredictable or unlike other investments. Generally, investors earn a return through selling the crypto asset for more than the purchase price. Some crypto assets, like coins or cryptocurrency funds, may receive dividends or other distributions depending on the terms.
During Your Review, Ask These Questions
- Am I making a rash or emotional decision without necessary facts?
- Where is the business or individual issuing the crypto asset located?
- Do I understand what the crypto asset does or how it is structured?
- Am I prepared to lose all or most of my invested capital?
- Are there any signs the crypto asset may be a scam?