Do your research before jumping on the cryptocurrency bandwagon
These days, it seems like cryptocurrencies are at the heart of a huge portion of financial news stories. And for good reason. Did you know that there are now more than 1,500 in the world? But between the volatility of bitcoin and the promising future of blockchain technology, it can be very difficult to understand the intricacies of this relatively new phenomenon, even for savvy investors. The only certainty at the moment is that cryptocurrencies are not tied to nor regulated by any central bank or regulator.
On the other hand, many of the first cryptocurrency issues, commonly known as ICOs (Initial Coin Offerings), are subject to the Quebec Securities Act, which is administered by the Autorité des marchés financiers (AMF). WHAT IS THE FIRST ISSUE OF A CRYPTOCURRENCY?
In simple terms, the first issue of a cryptocurrency is a fundraising operation conducted online by companies or individuals that consists of an offering, for a limited period, of digital assets in order to finance a startup project. Investors are not offered shares that will be listed on the stock market, but rather tokens whose value and potential use are closely linked to the success of the funded project. Seems complex, doesn’t it? What’s essential to remember is that cryptocurrencies or tokens are digital assets that can be issued by almost anyone, hence the importance of really understanding the project and its details before investing your real dollars. WHAT ARE THE RISKS?
“Investing in digital assets involves high risks, starting with the risk of losing all of your investment,” said Jean-François Fortin, executive director of enforcement at the AMF.
In fact, fraudulent practices are rampant, such as the publication of false information that aims to artificially inflate the value of a cryptocurrency until issuers liquidate everything and flee with the money.
“Even when issuers act in good faith, the risk of losing everything remains high because of computer bugs or cyber attacks that can occur on trading platforms,” Fortin said.
And on top of that, many projects will fail or never materialize as advertised to investors.
While technology is evolving, the golden rules for investing remain the same. If you’re guaranteed high returns in a short period of time, it’s best to just move on. There’s significant truth to the notion that you should only invest in opportunities you understand. Understanding how cryptocurrencies work, however, requires a minimum of knowledge of cryptography, computer science and economics, so it’s crucial that investors do their research before jumping on the cryptocurrency bandwagon.
Make sure you get reliable information about the company and project in which you are investing. Who are the administrators? What rights come with the tokens you are about to acquire? Does the cryptocurrency issuer comply with the Securities Act? If you cannot get the information to answer these questions easily, it’s best to beware.
For more information on cryptocurrencies or to report any worrisome situations related to these products, visit
lautorite.qc.ca or contact the AMF’s Information Centre at 1-877-525-0337. A TYPE OF INVESTMENT THAT ISN’T FOR EVERYONE