CFTC Warns Crypto Investors
The U.S. Commodity Futures Trading Commission (CFTC) issued a statement on Thursday in which it warned investors not to purchase digital currencies based on “social media tips or sudden price spikes”. Per the U.S. regulator, cryptocurrency investors should carefully and “thoroughly” research crypto-platforms they plan to invest in, and the organizations behind them.
Additionally, the CFTC reminded investors of the much older versions of the pump-and-dump schemes that “boiler room” fraudsters would lure people into. Basically, these fraudulent schemes would make false promises about companies launching cutting-edge products or innovations. This would serve to artificially and temporarily inflate the price of their stocks. However, once the shares reached a certain price, there was a rather quick and massive selloff by the people who had “pumped up” prices through misleading hype. Unsuspecting investors who weren’t in on this dirty plan would then be left with stock worth almost nothing.
Fraudulent Schemes in the Cryptocurrency Market
According to the CFTC, social media outlets, online messaging boards, and fake news reports are used these days to carry out essentially the same type of frauds in today’s cryptocurrency market. While pointing out that its own regulatory authority over the crypto-market is limited, the CFTC stated that “Commonly, it is the people pulling the strings who get out first making the most in the scheme, and leaving everyone else scrambling to sell before losing their investment”.
Notably, the federal regulator has issued these statements right after Commissioner Brian Quintenz and CFTC chairman J. Christopher Giancarlo said that crypto-related businesses should regulate themselves. Mr. Giancarlo also added that crypto-market participants must take on the responsibility of “cleaning up” their industry. This is the only way that they can earn the respect of the larger community, according to the chairman.
FINRA Also Warns Crypto Investors
Financial Industry Regulatory Authority (FINRA), an American self-regulatory organization, has issued similar warnings regarding cryptocurrencies. Per FINRA, “Even when legitimate companies flock to a hot, new sector, fraudsters almost always follow suit, exploiting the news to launch their latest frauds du jour”. In addition, the private regulator stated that investors should avoid getting trapped by companies who make “unrealistic predictions”.
The United States is not the only country where authorities have expressed the need for a self-regulatory framework for the crypto-market. In fact, Core Media recently reported that seven major crypto-related companies in the UK have started developing self-regulatory standards for the digital currency industry. These prominent companies, which include Coinbase, eToro, and CEX.io, have emphasized that they want to work cooperatively with governmental entities in order to bring more transparency and “clarity” to UK’s crypto-markets.
If world governments can find a way to work collaboratively with the crypto-community to weed out the criminal elements from this promising new industry, then it will definitely help it grow and mature in a desirable manner.