What are the BIGGEST risks associated with speculating in cryptocurrencies?
Many cryptocurrencies do not have any intrinsic economic value nor do they generate cash flows such as interest payments or dividends. Currently, the primary rationale for investing in cryptocurrencies is speculation that the market for cryptocurrencies will grow and that prices will rise. Additional risks include, but are not limited to:
- Absence of regulatory oversight or investor protections – Cryptocurrencies are not regulated by any government agency or central bank.
- Cybersecurity risk – Cryptocurrencies are bought, sold and stored online, which makes all parties in the cryptocurrency value chain vulnerable to cyberattacks and breaches.
- Custody and clearing – Many of the custody and clearing standards used to trade securities have not been implemented by cryptocurrency exchanges.
- Concentrated ownership – A large number of cryptocurrencies are controlled by early adopters who are unlikely to sell, which contributes to price volatility.
Prior to making an investment decision, please consult with your financial advisor about your individual situation. The prominent underlying risk of using Bitcoin as a medium of exchange is that it is not authorized or regulated by any central bank. Bitcoin issuers are not registered with the SEC, and the Bitcoin marketplace is currently unregulated. Bitcoin and other cryptocurrencies are very speculative investments and involve a high degree of risk. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment, and a potential total loss of their investment. Securities that have been classified as Bitcoin-related cannot be purchased or deposited in Raymond James client accounts
REGULATORY BACKGROUND | Financial Industry Regulatory Authority (“FINRA”) and the Securities and Exchange Commission (“SEC”) have issued multiple warnings to investors regarding the risks associated with Bitcoin and other cryptocurrency. New products and/or technology, such as Bitcoin and other cryptocurrency, are typically considered high-risk investment opportunities as they commonly are targeted by fraudsters who manipulate the market with artificial promotional scams. As of January 2021, the SEC is currently reviewing more than 10 applications and has rejected multiple applications from fund companies seeking to create and list a cryptocurrency Exchange Traded Product (“ETP”) due to the highly unregulated nature of the cryptocurrency marketplace. The biggest risk factors surrounding Bitcoin (and other cryptocurrency) issuers include that they are not registered with the SEC (or local country regulator) and can be exploited by criminals for money laundering/terrorist financing making the source of funds difficult to follow and verify.
RJF CRYPTOCURRENCY SECURITY DEFINITION | Approved cryptocurrency-related securities are defined as any security that is associated with a company and/or issuer that is:
1. Affiliated with a U.S. federally regulated cryptocurrency business operation;
2. Listed on a U.S.-recognized exchange (e.g., NYSE or Nasdaq); and
3. Subject to RJF Securities Review Group (SRG) approval.
Prohibited cryptocurrency-related securities are defined as any security that is associated with a company and/or issuer that is affiliated with one or more of,
but not limited to, the following non-U.S. federally regulated cryptocurrency business objectives:
1. Indexed to the underlying price movement of a cryptocurrency;
2. Cryptocurrency mining;
3. Cryptocurrency escrow services; and/or
4. Cryptocurrency exchange or payment services.
© 2021 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. © 2021 Raymond James Financial Services, Inc., member FINRA/SIPC. Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value. Raymond James® is a registered trademark of Raymond James Financial, Inc. 21-BDMKT-5050 KS 5/21