BC regulator warns about investing in Cryptocurrencies

By Katherine Green

Cryptocurrencies have long enjoyed a warm reception in British Columbia. As early as 2011 small businesses were accepting Bitcoin and the world’s first Bitcoin ATM started dispensing cash at a Vancouver Waves coffee shop back in 2013. But now the BC Securities Commission warns new organizations could be looking to take advantage of our propensity for early adoption in the form of cryptocurrencies issuing Initial Coin Offerings (ICOs), or Initial Token Offerings (ITOs).

In a recent press release[1]https://www.bcsc.bc.ca/News/News_Releases/2018/36_Investor_Alert__Cryptocurrencies/ the BCSC stated they have seen “an increase in the number of cryptocurrency offerings involving an initial coin offering (ICO) or initial token offering (ITO).”
ICOs or ITOs are used by companies to secure funding for future projects. They will often create new currencies and gain support issuing them through an ICO. They are usually offered to the investor at a discounted rate for a future good or service. Think of buying discounted car wash or laundromat tokens for a business that is not yet operational.

While ICOs are not necessarily nefarious in nature, as we see this model of investment commonly practiced in crowdfunding, cryptocurrencies differ because they intrinsically carry a level of anonymity and international scope which is tough to regulate. “Companies offering cryptocurrencies or ICOs can be located anywhere in the world,” says the InvestRight website[2]https://www.investright.org/. “If the company is outside BC or Canada, it may be impossible to recover your funds if there is a problem.” Some ICOs also may have unclear terms and low liquidity preventing an investor from finding a buyer should they want to sell their share.

The BCSC advises British Columbians exercise caution when it comes to ICO and ITO investing: “While some companies follow through on their business plan or idea, others do not. Some companies issue coins or tokens solely for speculative trading in the secondary market, which is an inherently risky activity for investors.”

Because some ICOs and ITOs are in actuality qualified securities the BCSC maintains a database to help inform investors: “The BCSC takes a proactive approach to help protect B.C. investors by publishing an Investment Caution List, which identifies unregistered activity and unqualified securities promoted in British Columbia. The BCSC relies on information from the public and other agencies to identify new entries to the list.” The BCSC also states that if a ICO is a verified security then BC security laws will apply to an investment.

If you are still unsure of the veracity of a potential ICO or ITO investment, InvestRight has compiled a list of some warning signs to look for:

  • Guaranteed returns – There is no such thing as a guaranteed investment. Returns are possible because of the inherent risk of investing.
    Promise of high returns – If the investment sounds too good to be true, it probably is too good to be true. The investment could also be more risky than an investor thinks it is.
  • Get in now – Be wary of pressure to make a quick decision. Take your time researching the ICO before investing any money.
    Unsolicited offers – A sales pitch you didn’t ask for from a company you don’t know of can be a red flag for fraud. Think twice about investment pitches you receive via email, social media, or phone call.

References   [ + ]

1. https://www.bcsc.bc.ca/News/News_Releases/2018/36_Investor_Alert__Cryptocurrencies/
2. https://www.investright.org/

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