SEC, CFTC warn of risk of virtual currencies and initial coin offerings

The chairmen of the Securities and Exchange Commission and the Commodity Futures Trading Commission issued statements on Thursday, warning of the risks of cryptocurrencies and updating investors about actions regulators are taking to protect them and the markets.

The SEC issued a statement from chairman Jay Clayton, joined by commissioners Kara Stein and Michael Piwowar, to salute the North American Securities Administrators Association (NASAA) for issuing a release that highlights important issues and concerns related to cryptocurrencies like bitcoin BTCUSD, -1.52% initial coin offerings and other cryptocurrency-related investment products.

The NASAA release reminds investors that sellers of securities and other market participants must follow laws.

“Unfortunately, it is clear that many promoters of ICOs and others participating in the cryptocurrency-related investment markets are not following these laws,” said the SEC statement. “The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment.”

In his statement on Thursday, CFTC chairman J. Christopher Giancarlo touted a backgrounder on the CFTC’s oversight of and approach to virtual currency futures markets. He also said that the CFTC’s Market Risk Advisory Committee, led by CFTC Commissioner Rostin Behnam, will meet January 31, 2018 to consider the process of self-certification of new products and operational rules by Designated Contract Markets under the Commodity Exchange Act (CEA) and CFTC regulations.

The CME Group BTCF8, -4.49% and the CBOE XBTF8, +12.21% recently used the CFTC self-certification process to begin trading futures on virtual currencies.

Read: Bitcoin futures finish at break-even level as crypto suffers early bumps in 2018

On January 23, 2018 the CFTC Technology Advisory Committee led by CFTC Commissioner Brian Quintenz will consider the related challenges, opportunities, and market developments of virtual currencies.

Giancarlo reminded investors that virtual currencies technology is very new and introduced risks such as the “operational risks of unregulated and unsupervised trading platforms; cybersecurity risks of hackable trading platforms and virtual currency wallets; speculative risks of extremely volatile price moves; and fraud and manipulation risks through traditional market abuses of pump and dump schemes, insider trading, false disclosure, Ponzi schemes and other forms of investor fraud and market manipulation.”

He also noted that “ignoring virtual currency trading will not make it go away. Nor is it a responsible regulatory strategy.”