The “rising popularity” of initial coin offerings is considered the main reason for growing scams and exploits among retail investors.
The United States Securities and Exchange Commission published a new alert about investment scams related to digital assets and cryptocurrency.
The announcement, shared by the SEC’s Office of Investor Education and Advocacy and the Division of Enforcement’s Retail Strategy Task Force, highlighted the “devastating losses” faced by retail investors due to scams.
The SEC attributed the “rising popularity” of initial coin offerings, including cryptocurrencies, as the main reason for growing scams and exploits.
The SEC also said that the price surge of certain digital assets has been a key factor for scammers to lure unsuspecting investors:
“Investors may be less skeptical of investment opportunities that involve something new or ‘cutting-edge,’ or may get caught up in the fear of missing out (FOMO).”
Investors’ FOMO is mainly attributed to the recent bullish performance shown by numerous tokens and nonfungible token initiatives. The alert acknowledges that one of the main reasons for FOMO among investors is the mindset that “they will miss an opportunity to become very wealthy.”
To help investors stay in the clear, the SEC suggests digital asset investors understand and evaluate the risks in addition to looking out for warning signs for a possible scam, including promises of high investment returns, unclear license and registration status, and fake testimonials.
The SEC highlighted BitConnect’s $2-billion scam that resulted in huge losses for the retail investors. “The platform allegedly paid investor withdrawals out of incoming investor funds and did not trade investors’ Bitcoin consistent with its representations, leading the platform to collapse and investors to lose massive amounts of money,” the warning said.
Related: Crypto is too big to exist outside of public policies, warns SEC chair
On Sept. 1, Gary Gensler, the chair of the SEC, reiterated the need for a regulatory framework that can help crypto investors ward off scams and other related risks.
Gensler said that cryptocurrency’s relevance in the next five to 10 years would be highly dependent on a public policy framework. Supporting this statement, he said, “Finance is about trust, ultimately.”
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