‘Buyer beware’ on bitcoin trading platforms

Investors rushing online to trade cryptocurrencies such as bitcoin are dealing in a largely unregulated market.

It was reported this week that Christchurch-based trading platform Cryptopia had suspended some of its activity because of a market frenzy. It registered 100,000 new users on Sunday alone.

In that case, investor money was safe and could be withdrawn, even while it could not be traded.

But lawyer Geoff Wardmarshall warned investors should note that trading cryptocurrencies did not come with the same regulatory protections as putting money into other investments.

Currencies, including cryptocurrencies such as bitcoin, are not counted as a financial product under the Financial Markets Conduct Act.

The providers of currency exchanges only have to register on the Financial Services Providers Register, and be part of an external dispute resolution scheme.

They only have to comply with fair dealing provisions prohibiting misleading conduct and deceptive statements. They do not have to be licensed in the way a Kiwisaver provider must be.

Ward-marshall said investors should do due diligence about the exchanges they were dealing with, including checking where their money was being held.

‘‘It’s very much a case of buyer beware at the moment.’’

He said New Zealand could take the lead internationally if it was willing to try a new approach.

‘‘I think there’s a real opportunity to attract business to New Zealand if we did choose to separately regulate crypto exchanges and blockchain-related financial services businesses.

‘‘They may not be regulated in New Zealand under current law but if they were then there’s a real demand for the comfort of regulation in this area.’’

Ward-marshall said cryptocurrencies that had other characteristics, such as those that gave voting rights in a company, could count as financial products.