The Financial Sector Conduct Authority (FSCA) has issued what it terms crypto health warning after receiving many complaints from South African victims of crypto scams. In the warning, the FSCA reminds prospective investors that crypto-related investments are currently not regulated. Therefore, investors have no recourse against anyone should they get duped.
Cryptocurrencies Are High-Risk Assets
The FSCA’s warning comes a few weeks after an executive with the regulatory body bemoaned the challenges of regulating cryptocurrencies and how scammers are taking advantage of this. The official singled out the now collapsed Mirror Trading International (MTI) as an example of how scammers now use cryptocurrencies to evade regulation.
Meanwhile, in the latest warning, the FSCA reminds South African investors to be on the lookout for crypto companies that “overstate potential pay-outs or understate the risks.” The South African regulator, just like its peers in the U.K. and New Zealand, reiterates the message that crypto investors can potentially lose everything.
The FSCA statement warns:
Investing in crypto assets, or investments and lending linked to them, generally involves taking very high risks with investors’ money, which mean that you should be prepared to lose all of your money.
The regulator also adds that “there is no guarantee that crypto assets could be converted back into cash.” This, according to the regulator, puts “consumers at the mercy of supply and demand in the market.”
The Power of the Fear of Missing Out
In the meantime, the FSCA’s warning statement also offers a glimpse of what the regulators perceive to be the drivers of crypto-asset prices.
The regulator says:
The price of crypto assets is dictated by the underlying mood or sentiment of the general public with no underlying basis for value determination. The prices are driven by the worldwide sentiment which is driven by persons who have an interest in the value of the crypto asset being driven up.
The FSCA officials believe Ponzi operators and some crypto influencers are taking advantage of the fear of missing out (FOMO) to convince new and inexperienced investors into buying crypto assets. Therefore, to help investors, the FSCA warning also offers some useful tips for investors that wish to buy crypto assets.
For instance, according to the regulator, cryptocurrencies “should only make up a small proportion of their investment portfolio” regardless of the risk. Investors are also urged to “obtain proper advice regarding the overall suitability of such high-risk product in your investment portfolio and the impact on it should it fail.”
The FSCA concludes its statement by reminding potential buyers of crypto assets that “if an investment looks too good to be true, it usually is.”
Do you agree with the FSCA’s assertions that cryptocurrency prices are driven by the public’s underlying mood? You can share your views in the comments section below.