SEC Warns 'Extreme Caution' Over Cryptocurrency Investments As Many People Take Out Mortgages To Buy Bitcoin (qz.com)

The head of the US Securities and Exchange Commission has warned bitcoin and other cryptocurrency investors to beware of scams and criminal activity in the sector. In the financial regulator's strongest statement yet, SEC chair Jay Clayton said: "If a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost." The warning comes at a time when many people have begun to take out mortgages to buy bitcoin. From a report: Clayton's statement was also issued the same day the SEC took regulatory action to halt an initial coin offering (ICO). "Recognize that these markets span national borders and that significant trading may occur on systems and platforms outside the United States. Your invested funds may quickly travel overseas without your knowledge," he wrote, in a sentence that was in bold. Clayton's statement referenced some of the crucial debates that have swirled around the rise and regulation of crypto-assets like bitcoins. Are these currencies? Commodities? Or securities? The statement notes in a footnote that bitcoin in the US has been designated a commodity. But the broader answer seems to be that while it depends from case to case, initial coin offerings, at least, are more likely to be scrutinized and held to the same bar as securities offerings.

Comments

Re:I'm Rich, Bitch

[bobbied]

You don't actually make a profit until you sell the asset.... I suggest you do that NOW!

Re:Bubble Indicator

[TheRaven64]

The 'and margin' part of that is the real problem. If people are using secured credit, such as mortgages, then it isn't such a problem: worst case, they lose their house (more likely, they will just end up paying back their mortgage over a longer time), but all that's happening to the economy is money moving around a bit. The problem with margin is that you're borrowing against the value of the thing that they're investing in. In a system with fractional reserve banking, that borrowing increases the money supply (more money is created by the act of borrowing). As long as the asset increases in value, that's fine (that's what fractional reserve banking is meant to do: keep the amount of money in proportion to the value of the economy). As soon as there's a crash, these people no longer have assets that can be recovered to pay their debt and they have no option but to declare bankruptcy. This results in a sudden contraction of the money supply, which reduces liquidity across the entire economy and can cause a recession or depression. Bitcoin probably isn't large enough to have a serious impact on the global economy when it collapses, but it's likely to cause some localised problems.