Alert issued about ‘smart wallet’ apps
The British Columbia Securities Commission is warning Canadians about new cryptocurrency “smart wallet” apps that it says share characteristics with pyramid schemes.
The regulator highlighted two apps — both of which have ties to Canada — that it suggested users approach with “extreme caution.” Cloud Wallet and Wotoken Wallet, which require minimum deposits between US$100 to US$1,000 to begin trading, both claiming to use artificial intelligence in order to perform automated trading of crypto assets on multiple exchanges.
Both apps promise users extremely high rates of “earnings” per month, what BCSC director of enforcement Doug Muir said was an initial warning sign for the regulator.
Wotoken Wallet advertises its users will earn between six and 20 per cent monthly while Cloud Wallet suggests users can collect six to 15 per cent, according to a BCSC news release.
The other red flag for Muir was that both apps promise bonuses for signing up additional users, a feature he said was common to pyramid schemes.
“There’s a pyramid aspect to it and what we mean is people are encouraged to get in and bring other people in as well and what it does is two things: It creates a stream of money into this scheme that causes us some concern, but it also creates an incentive for people to get involved because it’s another method of profit,” Muir said.
A video on Cloud Wallet’s Youtube page explains a basic scenario where a user named “Simon” deposits US$500 into Cloud Wallet — the minimum to be eligible for what the app describes as a “matching bonus.”
Simon refers “Catherine” to Cloud Wallet and receives a bonus that equals her monthly earnings.
The more people Simon signs up, the more bonuses he’s eligible to receive.
When his partners sign up new recruits to the app, Simon is eligible to make money from them as well.
According to the BCSC, those bonuses are paid in crypto assets that are unique to the apps. Users can then convert those assets into other more commonly traded cryptocurrencies such as Bitcoin and from there, convert their funds into mainstream currencies.
When contacted before publication, a Cloud Wallet spokesperson said they could not immediately get a lawyer to respond to the BCSC concerns. The spokesperson, however, stressed that the app isn’t a “Ponzi scheme” and went through a “strict approval process just to get listed on the Apple App Store.”
The Post was unable to contact Wotoken Wallet before publication.
Muir would not say whether users had complained about losing money on the apps, only that the BCSC received information “that caused us some concern.”
The BCSC has not charged the companies that run the apps but felt that the information it had about them was significant enough to alert investors about them in news releases.