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The “increasing popularity” of initial coin offerings is cited as the primary reason for an increase in frauds and exploitation among retail investors.
The Securities and Exchange Commission of the United States issued a fresh warning regarding investment schemes involving digital assets and bitcoin.
The announcement, shared by the SEC’s Office of Investor Education and Advocacy and the Division of Enforcement’s Retail Strategy Task Force, highlighted the “devastating losses” faced by retail investors due to scams.
The SEC attributed the “rising popularity” of initial coin offerings, including cryptocurrencies, as the main reason for growing scams and exploits.
The SEC also said that the price surge of certain digital assets has been a key factor for scammers to lure unsuspecting investors:
“Investors may be less skeptical of investment opportunities that involve something new or ‘cutting-edge,’ or may get caught up in the fear of missing out (FOMO).”
The recent bullish performance of several tokens and nonfungible token ventures is primarily to blame for investors’ FOMO. According to the warning, one of the biggest causes of FOMO among investors is the fear that “they may miss an opportunity to become extremely wealthy.”
To keep safe, the SEC recommends that digital asset investors understand and analyse the risks, as well as watch for warning indicators of a possible fraud, such as promises of high investment returns, ambiguous licence and registration status, and phoney testimonials.
The SEC emphasised BitConnect’s $2 billion swindle, which caused in massive losses for regular investors. “The platform reportedly paid investor withdrawals from incoming investor funds and did not trade investors’ Bitcoin in accordance with its promises, causing the platform to fail and investors to lose significant amounts of money,” according to the notice.
On September 1, Gary Gensler, the SEC’s chair, underlined the need for a regulatory framework that can assist crypto investors in avoiding scams and other related hazards.
According to Gensler, cryptocurrency’s importance in the next five to ten years will be heavily reliant on a public policy framework.