Investors have lost hundreds of billions in cryptocurrency
Investments as the market hit record highs

NEW YORK – New York Attorney General Letitia James today issued an alert to New Yorkers reminding them of the dangerous risks of investing in cryptocurrencies after the market hit record highs last month and that investors have lost hundreds of billions. Cryptocurrencies are subject to extreme and unpredictable price fluctuations which make them one of the riskiest investments in the market. Last month, some of these risks materialized when the price of several virtual currencies – from newer coins to more established ones – took a deep dive and wiped out hundreds of billions of investments. This is not the first time the market has plunged. To protect New Yorkers from this extreme volatility, Attorney General James is offering advice to New Yorkers on the various risks associated with cryptocurrencies.

“Time and time again, investors lose billions from risky cryptocurrency investments,” said Attorney General James. “Even well-known virtual currencies from reputable trading platforms can still crash and investors can lose billions in the blink of an eye. Too often, cryptocurrency investments create more pain than gain for investors. I urge New Yorkers to be careful about putting their hard-earned money into risky cryptocurrency investments that can generate more anxiety than fortune.

The virtual currency market exposes investors to dangerous risks, such as wild price fluctuations and potential losses due to hacking, fraud or theft. Even “legitimate” investments in virtual assets are subject to speculative bubbles and security issues. Investors in virtual assets should beware of the many significant risks associated with investing in these products, including:

• Highly speculative and unpredictable value: Virtual currencies are easy to create and quickly released to market. Their underlying value is highly subjective and unpredictable. As a result, prices can swing wildly and crash without warning and without taking into account changes in the real economy. Sometimes price fluctuations are driven by market hype on various social media platforms.
• Difficulty collecting investments: There is no guarantee that you will be able to liquidate your investments whenever you want, such as when the crypto markets start to crash. In times of crisis, trading platforms may halt trading or claim to be experiencing technical difficulties, preventing you from accessing your assets.
• Higher transaction costs: Some trading platforms charge fees on transactions such as fund transfer and money withdrawal. These fees may vary depending on the size of the transaction and the overall volume of transactions. Therefore, it may also cost you more to access your assets when you need them most.
• Unstable “stablecoins”: Despite their misleading name, there is no guarantee that your stablecoin investment will be protected from falling in value. The nature and quality of assets backing stablecoins – if any assets backing the stablecoin exist – can vary widely, as can the risks associated with holding such coins.
• Hidden transaction costs: The value of cryptocurrencies and other virtual assets can be supported by automated trading, or bots, which are, for example, programmed to spot when another trader tries to make a purchase and then buy before the transaction. This practice can drive up the price and cost you more to buy the same virtual asset.
• Conflicts of interest: Many virtual currency trading platform operators are heavily invested in virtual currencies themselves and trade on their own platforms unsupervised. The financial interests of these operators may conflict with your interests. There have also been recent reports of large investors receiving favorable treatment, such as private out-of-market withdrawals.
• Limited monitoring: There are no federally regulated exchanges, such as the New York Stock Exchange or the Nasdaq, for virtual currencies. Virtual currency trading platforms operate from various locations around the world, many of which are not easily accessible to US law enforcement. Many platforms are subject to little or no oversight. If you are the victim of fraud on one of these exchanges, you will likely have no recourse in the United States. Additionally, many virtual currency issuers are unregulated and therefore not subject to net capital requirements or reviews. Thus, people who lose money trading a certain virtual currency may have no recourse when it comes to issuing the currency.

Today’s Investor Alert continues Attorney General James’ efforts to regulate the cryptocurrency industry and protect New York investors. Earlier this year, Attorney General James issued a Taxpayer Notice to virtual currency investors and their tax advisors to accurately report and pay taxes on their virtual investments. In October 2021, Attorney General James ordered unregistered crypto lending platforms to cease operations for failing to fulfill their legal obligations. In March 2021, Attorney General James warned New Yorkers of the risks of investing in cryptocurrency and reminded investment platforms of their legal obligations.

Additionally, in 2018, the Office of the Attorney General (OAG) released its “Virtual Markets Integrity Initiative” report, a more detailed look at virtual currency markets in New York and around the world. The report gives basic but important information on how virtual currencies trade and the risks investors face when buying and selling, even on “legitimate” trading platforms.

If you are concerned that you or someone you love has been the victim of investment fraud, contact OAG’s Investor Protection Office immediately. If you have worked in the virtual asset industry and believe you have knowledge of wrongdoing, contact the OAG’s Investor Protection Office or the online whistleblower portal immediately.