The Financial Sector Conduct Authority (FSCA) has issued what is known as a crypto health warning following numerous complaints from South African victims of crypto fraud. In the warning, the FSCA is reminding potential investors that crypto-related investments are currently not regulated. Therefore, investors have no recourse to anyone if they are betrayed.
Cryptocurrencies are high risk assets
The FSCA’s warning comes a few weeks after a regulator executive complained about the challenges of regulating cryptocurrencies and how fraudsters are taking advantage of it. The official highlighted the now-collapsed Mirror Trading International (MTI) as an example of how scammers are now using cryptocurrencies to evade regulation.
In its latest warning, the FSCA is reminding South African investors to look out for crypto companies that “overestimate potential payouts or underestimate the risks.” The South African regulator, like its counterparts in the UK and New Zealand, is reiterating the message that crypto investors can potentially lose everything.
The FSCA statement warns:
Generally, when you invest in crypto assets or related investments and loans, you are taking very high risks with investors’ money. This means that you should be ready to lose all of your money.
The regulator adds that “there is no guarantee that crypto assets can be converted back into cash”. According to the regulatory authority, this makes “consumers in the market dependent on supply and demand”.
The power of fear of missing out
Meanwhile, the FSCA’s warning statement also provides insight into what regulators see as driving crypto asset prices.
The regulator says:
The price of crypto assets is determined by the underlying sentiment or sentiment of the public with no underlying basis for determining value. Prices are determined by global sentiment, which is determined by individuals who have an interest in the value of the crypto-driven asset.
FSCA officials believe Ponzi operators and some crypto influencers are taking advantage of the fear of the miss (FOMO) to persuade new and inexperienced investors to buy crypto assets. So in order to help investors, the FSCA warning also offers some useful tips for investors looking to buy crypto assets.
For example, according to the supervisory authority, cryptocurrencies should “only make up a small part of their investment portfolio”, regardless of the risk. Investors are also encouraged to “seek appropriate advice regarding the general suitability of such a high risk product in your investment portfolio and the implications for that product should it fail”.
The FSCA concludes its statement by reminding potential buyers of crypto assets that “an investment that looks too good to be true usually is.”
Do you agree with the FSCA’s claims that cryptocurrency prices are dependent on underlying public sentiment? You can share your views in the comments section below.
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