The Financial Conduct Authority (FCA) and Action Fraud have warned about the dangers of investing in crypotcurrency assets and foreign exchange markets. UK investors lost £27 million last year to frauduluent schemes promising high returns.
The huge losses come after a boom in cryptocurrency trading, sparked by the popularity of Bitcoin. The digital currency attracted a raft of new investors after its value soared to almost £15,000 per Bitcoin at the end of 2017. But many investors suffered huge losses as its value more than halved in a matter of weeks.
Today a single Bitcoin is worth £6,138. It is just one of a number of a cryptocurrencies which have sprung up in recent years. At the same time a rampant market in trading these assets has also evolved.
The FCA says investors are often lured to such investments by a social media post promising spectacular returns and directed to an official-looking website. They are then contacted by fraudsters to say their first investment has been a success and they should encourage friends and family to join up. The customer's account is then closed and the firm cannot be contacted any further.
The City regulator is running a ScamSmart advertising campaign on social media to raise awareness of this fraud.
Pauline Smith, director of Action Fraud said "it’s vital that people carry out the necessary checks to ensure that an investment they’re considering is legitimate.” Investors are encouraged to check out the FCA's dedicated website for tips on how to avoid investment fraud.
The FCA's executive director of enforcement and market oversight, Mark Steward, reiterated that message: "“Scammers can be very convincing so always do your own research into any firm you are considering investing with, to make sure that they are the real deal."
The FCA and Action Fraud lay out the following tips to avoid become a victim:
1) Professional-looking websites, adverts or social media posts don’t always mean that an investment opportunity is genuine
2) If you’re thinking about making an investment, thoroughly research the company first and consider getting independent advice
3) Firms providing regulated financial services must be authorised by the FCA. You can check whether they are authorised on the FCA’s Register.
Crypto Boom
The spectacular increase in the price of Bitcoin and subsequently spectacular collapse, sparked huge interest in the traditional media and on social media platforms such as Twitter. Investors went from fear of missing out ("FOMO") to buyer's regret within a very short space of time. Other booms and boost, such as the dotcom era, took longer to build up before prices collapsed.
Bitcoin prices, far from offering diversification from traditional assets such as equities, seemed to follow them down when world stock markets slid at the end of the year. However, cryptocurrency assets have staged a minor recovery in recent months that is likely to tempt some investors, and fraudsters, back into the market.
Morningstar's John Rekenthaler took a step back from the noise in March this year to look at the advantages and disadvantages of crypto assets: "If cryptocurrencies did not exist, somebody would surely invent them. They meet a demand, which puts a floor on their prices."
However, in the absence of cash flows, Rekenthaler adds that traditional methods of valuing securities could be redundant, which makes pricing very difficult: "Assessing cryptocurrencies by calculating the value of their future payments is therefore a dead end. If cyber coins can be appraised, even tentatively, another approach must be found."
