New York Attorney General issues new warning to cryptocurrency investors

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Attor­ney Gen­er­al Leti­tia James issued an “alert” on June 2 warn­ing New York­ers about the dan­gers of invest­ing in cryptocurrencies.

The mes­sage comes as cryp­to mar­kets con­tin­ue reel­ing from the reper­cus­sions of the Ter­ra implo­sion. In May, the total cryp­to mar­ket cap shrunk by $446 bil­lion, mark­ing an eleven-month low for the sector.

James took the oppor­tu­ni­ty to issue a fresh warn­ing to investors, say­ing dig­i­tal assets are among the riski­est invest­ments on the market.

“Cryp­tocur­ren­cies are sub­ject to extreme and unpre­dictably high price swings that make them among the most high-risk invest­ments on the market.”

Not James’ first rodeo

The last time Attor­ney Gen­er­al James issued a sim­i­lar warn­ing was in March 2021, as sen­ti­ment was spik­ing due to Bit­coin ral­ly­ing to new all-time highs. How­ev­er, the mes­sage then had a more sig­nif­i­cant indus­try focus.

She informed the New York cryp­to indus­try mem­bers that they would be shut down if they didn’t “play by the rules.”

“We’re send­ing a clear mes­sage to the entire indus­try that you either play by the rules or we will shut you down.”

Specif­i­cal­ly, James referred to state reg­u­la­to­ry require­ments to reg­is­ter with the Office of the Attor­ney General’s Investor Pro­tec­tion Bureau. She said that oblig­at­ed par­ties who fail to com­ply would be sub­ject to civ­il and crim­i­nal enforcement.

Her mes­sage was clear, the NY Attorney’s Office is clamp­ing down on greedy cryp­to firms “who take unnec­es­sary risks with investors’ money.”

“Too often, greedy indus­try play­ers take unnec­es­sary risks with investors’ mon­ey, but, today, we’re lev­el­ing the play­ing field and issu­ing alerts to both investors and indus­try mem­bers across the nation”

Retail cryptocurrency investors beware

But now, James seeks to cau­tion retail investors, say­ing putting mon­ey into cryp­tocur­ren­cy invest­ments “can yield more anx­i­ety than fortune.”

“Too often, cryp­tocur­ren­cy invest­ments cre­ate more pain than gain for investors. I urge New York­ers to be cau­tious before putting their hard-earned mon­ey in risky cryp­tocur­ren­cy invest­ments that can yield more anx­i­ety than fortune.”

In the press release, James men­tioned sev­en spe­cif­ic areas to be aware of regard­ing dig­i­tal asset invest­ing. They were:

  • High­ly Spec­u­la­tive and Unpre­dictable Val­ue — high volatil­i­ty and easy price manip­u­la­tion, e.g., via social media.
  • Dif­fi­cul­ty Cash­ing Out Invest­ments — no guar­an­tees around exit­ing into cash, espe­cial­ly dur­ing times of high mar­ket volatil­i­ty and exchange restrictions/platform crashes.
  • High­er Trans­ac­tion Costs — vari­able fees due to net­work activ­i­ty and size of transactions.
  • Unsta­ble “Sta­ble­coins” — although not explic­it­ly stat­ed, ref­er­ences Ter­ra UST and vul­ner­a­ble peg­ging mech­a­nisms and dubi­ous claims around reserves back­ing par­tic­u­lar stablecoins.
  • Hid­den Trad­ing Costs — bot-dri­ven mar­kets designed to manip­u­late prices.
  • Con­flicts of Inter­est — Cryp­tocur­ren­cy trad­ing plat­forms may have inter­ests con­trary to their customers.
  • Lim­it­ed Over­sight — the indus­try has no fed­er­al­ly reg­u­lat­ed exchange, and plat­forms oper­at­ing in this space lack gen­er­al over­sight. As such, vic­tims of fraud may have no recourse.

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