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Buying Cryptocurrency, Here's What You Should Know

CryptocurrencyThinking About Buying the Latest Cryptocurrency?

Should you or shouldn’t you buy the latest new cryptocurrency or token? This is a popular question amongst all ages of investors. Millennials are influencing their parents and peers to invest in the crypto craze, but there is one thing many people want to know, is it safe? Here are some things to consider when deciding if a cryptocurrency-related investment product is right for you.

Regulation Concerns

Perhaps the most important thing to know is the cryptocurrency-related investment markets are very different than our regulated securities markets. For example, our securities laws provide important protections that you may not be getting when dealing in cryptocurrency-related investments. In many cases you may not know exactly who you are dealing with, where your money is going or what you are getting in return. You should understand if you lose money there is a real chance the SEC and other regulators won’t be able to help you recover your investment, even in cases of fraud.

Celebrity Endorsements

These digital assets have been trending and receiving the attention of celebrities, often through endorsements. You may see them on social media, radio or TV promoting bitcoin and a variety of other products and services. Never make an investment decision based solely on celebrity endorsements. Just because your favorite celebrity says a product or service is a good investment doesn’t mean it is. Always do you own thorough research of the product.

Commodity for Fraud

Trendy investments are especially ripe for fraudsters so be aware there is a real risk of fraud. Scam artists prey upon the newness of an investment opportunity when there isn’t as much history about the product. It’s also easier to sell an investor on an “everyone is buying it” sales pitch when there’s a lot of buzz about a certain investment product. Don’t fall for high-pressure sales tactics, the promise of guaranteed returns or too good to be true claims.

If you do choose to purchase digital currencies or tokens, recognize that they are new. There may be significant risk involved in putting your money into something that hasn’t been around very long. A good rule of thumb when investing in a new product is to only invest money that you are willing to lose, so that it’s not financially devastating if the investment doesn’t pan out. One way to spread risk is to diversify your investments. Don’t put all your eggs in one basket. That way, if one of your investments loses money, the other investments can make up for it.

Cryptocurrencies may be today’s shiny, new opportunity but there are serious risks involved. Proceed with caution, do your research, evaluate your financial goals and most importantly, don’t flip a coin when you’re making investment decisions. Before you invest do your research and make sure the investment is right for you.

To learn more check out these blog posts: Bitcoin and Beyond: What Do You Know About Crypto? And Celebrities, Cryptocurrency, and Crime.

This article was extracted from a SEC publication by Lori Shock.