Most people feel vindicated when they are found to be right about something. We hate, however, being right about the dangers of cryptocurrency investments. Now that many cryptos have lost more than half their value, our phones are ringing. Investors have lost millions.
Worse, there is often nothing we can do.
As of this writing, bitcoin is down of its high by almost 70%. Today it is hovering at $6,530. Very recently it had fallen below $5,900. Just six months ago a bitcoin was worth about $20,000.
It isn’t just Bitcoin that has fallen. Ethereum is off its high by 68%. Ripple fell from $3.84 to just 45¢. Litecoin? Well it is living up to its name by falling nearly 80% in just 6 months. Litecoin’s founder reportedly admitted cashing out of all of his holdings leaving everyone else holding the bag.
Despite these losses, we still can’t keep track of the number of new ICO’s today. Incredibly, investors don’t seem to be deterred by the massive frauds going on everywhere.
Are all cryptocurrency offerings fraudulent? We have our suspicions but aren’t prepared to make such a bold statement just yet. But they are unsuitable for most investors.
If you want to engage in a bit of speculation and invest a few thousand dollars of crypto, have fun! If you are counting on that money to live on or worse – for retirement – you are probably in a world of hurt.
Incredibly, the more the crypto market sinks, the more the true believers claim that cryptocurrencies are a great deal. That’s like booking a room on the Titanic while it is sinking. Why would anybody do such a foolish thing? Because the ship’s owner reportedly said, “God himself could not sink this ship”?
What does that have to do with cryptocurrency investments? Some “believers” are still saying that the value of Bitcoin could rise above $1 million by next year.
Cryptocurrencies are mined out of thin air. If you think fiat currencies have no real backing, what supports the price of a bitcoin? Nothing. Just the belief that someone else will want in so bad that they will bid up the price.
Last November, John McAfee said, “I know predict Bitcoin at $1 million by the end of 2020. I will still eat my dick if wrong.” We are sorry John… but you backed yourself into a rather nasty corner.
Many crypto investors are now calling us hoping to get back their hard earned money. Were they victim of a scam or their own greed? Probably a bit of both.
It’s hard to stand on the sidelines when all your buddies are making millions and for doing very little. But now those friends have lost millions of dollars in equity.
If you invested online, your money is probably gone. Assuming there are legitimate actors in the crypto space, the marketplace has been overrun by fraudsters. It is hard to know what is real.
Did Your Broker Help You Invest in Bitcoin or Ethereum?
Many brokerage firms forbid allowing their sales staff to offer or recommend cryptocurrency investments. As the market has demonstrated, these investments are simply too risky and volatile for most investors. Brokerage firms and investment advisory firms also know that the SEC, CFTC and the states take a dim view of the current public offering marketplace for ICOs. (An ICO is an Initial Coin Offering.)
That hasn’t stopped rogue brokers from “trading away” and hiding cryptocurrency from their employers. Why would they do this? Brokers know that many clients, particularly millennials, are going to invest in cryptocurrencies. If they are going to do it anyway, why not make a commission? The alternative is to lose commission revenues.
And a few brokerage firms are actually exploring the crypto market.
Market giant Fidelity Investments is quietly gearing up to make a big foray into the cryptocurrency world. Last May, Fidelity CEO Abigail Johnson said, “I’m a believer. I’m one of the few standing before you today from a large financial services company that has not given up on digital currencies.”
On the opposite side of the spectrum Merrill Lynch earlier this year banned its advisers from buying or recommending bitcoin or related investments.
Charles Schwab began allowing select customers to trade CBOE Bitcoin Futures (symbol XBT) but with a gazillion required warnings to customers. Those warnings include high risk, volatility, cybercrime, fraud, cyberattack, theft, loss and lack of regulation.
TD Ameritrade doesn’t permit direct cryptocurrency investing but does permit investing in cryptocurrency futures contracts (XBT).
Even if your broker isn’t allowed to help you invest directly in cryptocurrencies, many do so through the backdoor. There are plenty of bitcoin related stocks, ETF’s and Bitcoin Investment Trust (GBTC). The latter had a value of $38.05 in December. Today it is $10.
Brokerage firms are responsible for the actions of their advisors and brokers. Whether or not a broker was authorized to sell or recommend a crypto investment really doesn’t matter. If you invested in cryptos through a broker and thought your broker was acting within the scope of his or her authority, then the chances are good that the brokerage firm is on the hook assuming you were given bad advice.
The SEC and CFTC require firms to properly supervise their employees.
Assuming the broker did have authority to facilitate crypto currency investing, that broker also has a legal duty to only recommend suitable investments.
If you are a true believer with money burning a hole in your pocket, you and not the broker is responsible for any losses. But if the broker recommended or solicited the investment, he or she has a legal duty to recommend suitable investments. And because cryptos are so volatile and subject to fraud, they are only suitable for the most sophisticated and aggressive investors.
Did a Stockbroker Sell You a Worthless Cryptocurrency?
If a stockbroker or investment advisor facilitated your cryptocurrency investment and that investment wasn’t suitable, we may be able to help you recover your money.
For more information, visit our cryptocurrency investment fraud page. Ready to find out if you have a case? Contact us online, by email or by phone at 202.800.9791. All inquiries are kept confidential. Legal services are provided on a contingent fee basis meaning you owe us nothing unless we recover money for you. Minimum investment loss is $1 million but we may still be able to assist with smaller losses.