Digital-based online currency, or cryptocurrency, is one of the hottest new investments around. But because it’s so new, not even seasoned investors necessarily understand everything about this online-only investment.
It was launched in 2009 as a digital currency not backed by any government nor accepted in many parts of the world as legal tender. But Bitcoin and others like it are run by a decentralized authority. Bitcoin is created, traded, distributed, and stored by way of a decentralized ledger system called a “blockchain.”
The Risks Involved With Crypto – Cryptocurrency Attorneys Can Help
While cryptocurrency can be a good investment for someone who thoroughly understands it, it is not without risks, even for the tech-savvy.
Crypto assets that are held in an interest-bearing account could be used to invest in other crypto asset-related products or activities. This includes loan lending programs where the assets are loaned to other borrowers. The interest you earn is based on these activities. However, these activities are also subject to the same risks as you would have with other crypto assets.
Like many financial markets, cryptocurrency also has highs and lows, and is especially volatile.
Crypto Interest-Bearing Accounts
One of the newer offerings are crypto accounts that pay interest, just like accounts from banks and credit unions. However, the SEC warns, these accounts aren’t the same as those from established financial institutions.
Banks and credit union accounts are subject to state and federal regulators that limit the risks that they can take with your deposited money. The purpose is to guarantee your money in the event of insolvency when you want to withdraw your funds.
Both the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) offer additional protection (to a certain amount) for depositor funds.
Securities accounts may also be protected from firm insolvency by the Securities Investor Protection Corporation (SIPC) should your broker become insolvent. However, the SIPC offers protection from market downturns.
The difference is that illiquid crypto assets held in an interest-bearing account have no such protection from losses, or other potential risks, such as:
- Company insolvency
- Market volatility
- Changes in state or federal regulations (or those of foreign governments) that limit or prohibit the use of crypto assets
- Unpredictability, including the possibility that the crypto asset becomes obsolete, disappear, or no longer be tradable
- The potential for fraud and other technical problems
- Lack of recourse in the event of a mistake, default or fraud
It’s vital to read and review all the documentation regarding your crypto investments to understand the risks involved prior to depositing funds.
BlockFi Lending BlockFi Interest Account (BIA)
Recently, the SEC announced an enforcement action against BlockFi over their BlockFi Interest Account (BIA).
The SEC’s complaint indicates that the company’s investors lent BlockFi their crypto assets through the BIAs. BlockFi then used investors’ crypto assets to make investments, including loans to institutional investors. BlockFi paid investors interest monthly in crypto assets. That makes the BIAs unregistered securities according to the SEC.
The company also “materially false and misleading statement on its website” regarding its collateral practices, understating the potential risks. Because of the number of securities it held, BlockFi was operating as an unregistered investment firm.
To settle the complaint with the SEC, BlockFi has agreed to stop selling BIAs to new customers, stop accepting additional assets and register under the Securities Act. The replacement product, called BlockFi Yield, will be registered with the SEC as required. They will also pay penalties of $100 million.
Cryptocurrency And Investment Fraud Attorneys
Silver Law Group represents investors in securities and investment fraud cases. Our cutting edge lawyers can assist you in cryptocurrency, NFT and Defi Network litigation. As these emerging technologies become mainstream, some people are going to try and take advantage of others and material misrepresent their projects. Our attorneys represent victims of cryptocurrency Ponzi schemes, investment frauds and other schemes.
Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.