Don’t buy a cryptocurrency pig in a poke

Cryptocurrency-buyer, beware.

Purchasing, selling and saving this relatively new kind of digital asset — the most famous of which is bitcoin — can be a smart way to make money or pay for goods and services.

But it can also be a good way to lose your shirt and maybe your shorts as well.

That’s why anyone who has bought crypto-assets or is thinking of doing so should heed the timely warning in a study released last week by the Ontario Securities Commission.

The study found that hundreds of thousands of Ontarians have sunk their money into what is in effect a digital form of money but without understanding what they’ve bought or even what they’re doing.

The securities commission is not saying people shouldn’t invest in this kind of asset. It is, however, telling them to become educated and cautious.

Wise advice.

Cryptocurrency can be defined in various ways. It’s a kind of digital currency, alternative currency or virtual currency. Think of it as a digital coin.

While it’s not backed by any country’s central bank, this kind of currency lets people transfer value to each other and pay for things without going through a middleman, such as a bank.

It’s not a fantasy. And it can serve a legitimate use. Canadians are already using cryptocurrency to pay online for hotel rooms, airline flights, movies, furniture and even on the premises of some stores.

They’re using cryptocurrency to wire money to someone else. In addition, they’re using it as an investment, to make a profit.

Bitcoin is surely the best-known cryptocurrency. In 2009, it was created as the world’s first decentralized digital currency. Two years later, each bitcoin was worth a dollar.

But the price gradually rose, then hit the stratosphere. By late 2017, a single bitcoin was selling for a staggering amount — nearly $20,000. Yet, in accord with the rule that what goes up comes down, by February of this year its value had plunged to below $6,000.

Depending on when they bought and sold, some folks made a lot of money. Others took a bath.

But there are other reasons to be wary of jumping on the cryptocurrency bandwagon too hastily, and the commission’s new study, “Taking Caution: Financial Consumers and the Cryptoasset Sector,” explains why.

“Late 2017 and early 2018 … saw countless fraudsters enter the crypto-asset market, selling unsuspecting individuals a variety of worthless “crypto”-branded products tied to fake businesses or fake assets, including real estate, gold and diamonds,” the study said.

“This trend has continued into 2018, with US$1.4 billion worth of crypto-assets allegedly having been stolen by digital token and other crypto-asset fraudsters in the first two months of 2018 alone — approximately US$9 million a day.”

Along with fraud, the crypto-asset market is plagued by cyberattacks. Drug dealers have infiltrated some markets. Meanwhile, regulatory oversight is difficult because the exchanges trading crypto-assets could be anywhere in the world.

The good news from the securities commission is that while 500,000 Ontarians now own crypto-assets, most have invested relatively little in them — half spent less than $1,000. And most people are behaving conservatively.

It’s the people who might get excited who should be listening to the Ontario Securities Commission.

Ask questions. Read documents. Know the risks. That centuries-old Latin maxim still applies.

Caveat emptor.

Or as we’ve already said: Let the buyer beware.