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

Posted by msmash on from the here-we-are dept.

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.

44 of 233 comments (clear)

  1. Now by Anonymous Coward · · Score: 5, Insightful

    Now is when you cash out, if you were wondering...

    1. Re:Now by Anonymous Coward · · Score: 2, Insightful

      Now is when you cash out, if you were wondering...

      Well the bitcoin network processes only 4 transactions per second. This hard limit will not let you cashout instantly.

    2. Re:Now by Hognoxious · · Score: 2

      And the non wealthy that got in the game early.

      Who are - at this point in time and on paper at least - wealthy.

      --
      Confucius say, "Find worm in apple - bad. Find half a worm - worse."
  2. Next month... by ScentCone · · Score: 5, Insightful

    Next month, "Help me, other tax payers who aren't idiots! My mortgage is now bigger than the market value of my house. Make a law that makes the bank put my mortgage back the way it was! It's not fair!"

    --
    Don't disappoint your bird dog. Go to the range.
    1. Re:Next month... by penandpaper · · Score: 5, Funny

      Pay off your mortgage with this one simple trick that banks hate!
      The IRS won't tell you this one investment trick to pay off your mortgage.

    2. Re:Next month... by Baron_Yam · · Score: 2

      Luckily there simply isn't enough money in Bitcoin to result in any political will to bail this greedy fools out.

      In the meantime, some of the big players will get richer and just enough of the fools will time it right to inspire others.

    3. Re:Next month... by Anonymous Coward · · Score: 3, Insightful

      "People have been taking out mortgages to buy bitcoins" = "I read on twitter one guy said he might take out a mortgage to buy more bitcoin".

      Seriously, if PEOPLE are taking out mortgages, I doubt it's many. Probably 1 or two. People are stupid, but surely not many are THAT stupid.

    4. Re:Next month... by Roger+W+Moore · · Score: 3, Insightful

      Luckily there simply isn't enough money in Bitcoin to result in any political will to bail this greedy fools out.

      That depends on who the fools are. Are you sure that no politicians have invested large sums in bitcoin?

    5. Re:Next month... by ScentCone · · Score: 2, Insightful

      then your not so veiled comparison to the mortgage crisis

      No, it's a not-so-veiled comparison to every other situation where people deliberately, knowingly, foolishly take on a mountain of debt they can't afford. And then start looking to other people - via government compulsion through taxes taken mostly from a small percentage of the population - to pay for it. It's no different than people stamping their feet and demanding that we elect Bernie Sanders because he's promising to eliminate the debt his supporters racked up getting a useless French Lit degree while attending an expensive out of state party school instead of living within their means and using the local community college for a fraction of the price. It's the sense of entitlement we're talking about. I'm entitled to some of that sweet bitcoin profit, and I'm entitled to make other people pay for the debt I took trying to get it. Just like people feel entitled to a profit flipping houses in a bubble market, and entitled to being bailed out when the bubble they helped create then breaks.

      --
      Don't disappoint your bird dog. Go to the range.
    6. Re:Next month... by ranton · · Score: 3, Insightful

      Seriously, if PEOPLE are taking out mortgages, I doubt it's many. Probably 1 or two. People are stupid, but surely not many are THAT stupid.

      You are ignoring the most powerful motivator to make risky financial decisions there is: "So many people are making so much money and i'll be an idiot if I am the only one making nothing!"

      There are probably thousands if not tens of thousands of people who have already invested far more money than they can afford to lose on Bitcoin. The National Council on Problem Gambling estimates that 2 to 3 percent of adults in the United States (as many as 9 million people) have serious problems with gambling. Another 3 million meet the criteria for “pathological gambling” (also known as “compulsive gambling”). These are the types of people who would think Bitcoin is a good investment; the kind which can double their money overnight. "If I only invest $1000 instead of $10,000 I will lose $9000 when the price doubles, I need to invest more!"

      Many people really will make a lot of money on this (many already have). Maybe Bitcoin goes up to $50k and today's investors will make serious money. But it is no different than doubling down on a good black jack hand. Eventually most people will probably lose big.

      --
      -- All that is necessary for the triumph of evil is that good men do nothing. -- Edmund Burke
    7. Re:Next month... by Hognoxious · · Score: 5, Funny

      I lived below my means and put the extra money against the principle. It's the living below your means that most people have trouble with.

      That's because they're unprincipaled.

      --
      Confucius say, "Find worm in apple - bad. Find half a worm - worse."
    8. Re:Next month... by ranton · · Score: 3, Insightful

      To those modding this down, you do know "ignorant" is not just some derogatory remark, right? It is used to describe someone who lacks understand, such as someone who thinks the investor protections are unnecessary because average people should just be smarter.

      --
      -- All that is necessary for the triumph of evil is that good men do nothing. -- Edmund Burke
    9. Re:Next month... by Srin+Tuar · · Score: 2

      > Yes, we would have said the same thing two months ago, and we'd STILL be correct.

      Uh huh, and 2 months from now you will be "right" again no doubt.

      Lol, if you do the opposite of everything slashdot said about bitcoin you'd be rich.

      I'm convinced this site is full of techno-geezers who have grown old and are now afraid of anything new. Rather than actually learning what this thing is, they just yell "get off my lawn" from their rocking chairs.

      Bitcoin is something new, something most slashdotters have been skeptical of since it was worth pennies. I really though a 10K price tag would wake a few people up, but it seems like that not enough.

      Tell me honestly, what would it take for you to realize bitcoin is going to change the world even more than the internet has ? A 100K price tag? Perhaps a serious decline in a major currency, in favor of bitcoinization ?

    10. Re:Next month... by bws111 · · Score: 2

      Other than criminal activity, name ONE thing that makes bitcoin worth anything at all. What can bitcoin do that no other currency or cryptocurrency can? What can bitcoin do as opposed to a cryptocurrency backed by a government, or a cryptocurrency supported by some big financial players (banks,Visa, MC, even Apple, etc)? What can bitcoin do as opposed to a cryptocurrency traded on legitimate, regulated, exchanges?

      Cryptocurrency MAY (or may not) have a siginificant impact on the world. There is absolutely ZERO indication that BITCOIN will have the slightest impact.

    11. Re:Next month... by ScentCone · · Score: 2

      Your entire post just boils down to "we don't need consumer or investor protections..."

      Consumer and investor protections are essentially law enforcement measures there to prevent crime, usually in form of some sort of fraud. You're deliberately conflating that with grabbing a bunch of tax money from a group of people and handing it over to another group because they made poor choices. So, some person who KNEW it was unwise to take on a variable-rate, 0% down payment mortgage (and, wisely, resisted doing so) gets to work part of every day to pay taxes that will be handed over to people who la-la-la took out a huge loan they were in no position to handle. That's not consumer protection, it's politicians trying to be seen being generous to a dumb group of people with money taken from a smart group of people.

      Take the French Lit degree holder in your example. Perhaps it was a bad decision, but what is the proper way for society to handle that?

      How about ... tell the person who wants the degree in French Lit from a school that costs $50k a year that perhaps they'd be better off taking those first couple years of classes someplace they can actually afford it? Who said anything about getting rid of the degree? We're talking about telling the person who thinks they deserve to have other people buy them four years at an expensive school that - just like the person who wisely keeps their tuition costs under control by getting their degree in, say, hospital administration or engineering from a lower-cost in-state school after some time in the community college - their choices are going to cost them, and only them, what those choices cost. The guy who - despite loving literature - chooses instead to attend a vocational school and then quickly starts making $70k as a diesel mechanic while enjoying his fascination with Polish poetry on his own time without decades of debt to whine about, is the one you seem to be thinking should be taxed so that other, less-wise entitled-feeling idiot can attend Harvard and graduate without any prospect for a job in the studied field.

      Attacking all consumer protections or safety nets

      Nice straw man, there. Please cite the words I used that resemble anything at all like that. Really, go ahead.

      --
      Don't disappoint your bird dog. Go to the range.
  3. Caveat emptor by nospam007 · · Score: 4, Insightful

    Stupidity is never a good investment.
    They should have done that when it was at 11 bucks, not 11.000.

    1. Re:Caveat emptor by Registered+Coward+v2 · · Score: 3, Insightful

      Stupidity is never a good investment. They should have done that when it was at 11 bucks, not 11.000.

      Unfortunately, the amount of stupidity in the universe seems to exceed the size of the universe. I read a quote to that effect on the internet so it must be true.

      This has all the makings of the Tulip Bubble combined with a pump and dump scheme. Folks who have a lot of BitCoins from early on are in a position to cash out and can manipulate the market to avoid a crash and run on it. The lack of liquidity on the sell side means the suckers ^H^H^H^H^H^H^H investors buying in now won't be able to easily pull out in a dip when they need money or take advantage of a rise in value to pay off the mortgage. All the big players need to is keep hitting new highs after dips to keep people from jumping in while they sell their cache for cash as tehy get out of the game. Volatility is their friend because all people see is a chance to make huge gains without understanding the underlying risk or fundamentals of the marketplace. Best of all, the manipulation is perfectly legal since it is unregulated and no one is selling BitCoin as an investment.

      --
      I'm a consultant - I convert gibberish into cash-flow.
    2. Re:Caveat emptor by houghi · · Score: 2

      Even at 11, you should not borrow to invest in stocks, unless you are able to pay back that loan when things go bad.

      Hindsight means that you would have been able to gain if you sell now. But if you don't and it goes to 5 or 0, you still would have lost all the money you loaned or borrowed from that nice Sicilian guy.

      --
      Don't fight for your country, if your country does not fight for you.
  4. It's OK... by b0s0z0ku · · Score: 2, Insightful

    those of us that bought homes in 2008 will be more than happy to ...
    (1) take a HELOC
    (2) buy their homes at sheriff's auction when BTC crashes
    (3) rent them back to them (or evict them and rent to hard-working immigrants)
    (4) profit

    Every future crisis is just a path to profit.

  5. More like a giant poker game by timholman · · Score: 3, Interesting

    Are these currencies? Commodities? Or securities?

    No, more like a giant poker game where a few people will win and a lot more will lose. Oh, and the game may or may not be fixed, but if it is, there's not a thing you can do about it.

    Or more accurately, like the pyramid parties and pyramid letters that were so popular back in the early 1980s, where a bunch of people would pass money to the people at the top of the pyramid. You could make money at it, provided you brought in some greater fools to the next party to pass money to you.

    Bitcoin is a zero-sum game. No one is walking away from the table with any money that didn't come from someone else's pocket. Or in some cases, from someone else's credit card, mortgage, retirement account, or college fund.

  6. Bubble Indicator by TJ_Phazerhacki · · Score: 5, Insightful

    Isn't one of the key defining features of a bubble when a large number of relatively uniformed people decide to participate based on credit and margin? Tulips, the Great Crash, Great Recession, Internet Stocks, Great Recession...

    --
    Physics is nothing like religion. If it was, we'd have an easier time trying to raise money!
    1. Re:Bubble Indicator by leonbev · · Score: 4, Insightful

      Well, that and people trying to convince you that "This time is different, $FINANCIALPRODUCTX is a new paradigm! The old rules do not apply!", where $FINANCIALPRODUCTX was .com stocks in 1999 and spec home investing in 2006.

      Not that I think what I say here will sway anybody. Don't say that you haven't been warned, though.

    2. Re:Bubble Indicator by 0100010001010011 · · Score: 4, Insightful

      https://news.slashdot.org/comm...

      If you look at the history of crashes, nearly all have one thing in common: Many people investing with borrowed money. This happened with tulips, the South Sea Bubble, the 1929 crash, and the sub-prime mortgage crash. I am unaware of any bubble that did not involve a lot of people borrowing or buying on margin.

      So far that is not happening with bitcoin.

      "Less space than a nomad" in under 24 hours from ShanghaiBill.

    3. Re:Bubble Indicator by Megol · · Score: 4, Funny

      Relatively uniformed? Stripper cops?

    4. Re:Bubble Indicator by TheRaven64 · · Score: 3, Informative

      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.

      --
      I am TheRaven on Soylent News
  7. benis by Anonymous Coward · · Score: 2, Interesting

    Mortgage guy here. While I'm sure SOME people have done this, there is absolutely no reliable tracking post-funding to see what people did with the equity in their homes. In our Loan Origination System, there is an option for "cash out debt consolidation" & "cash out home improvement" but no option for "cash out Bitcoin". I call BS

  8. Collateral by sinij · · Score: 2

    I wonder what the collateral damage is going to be when bitcoin bubble bursts.

    My cynical bet is that it will be used as a pretext to start the next crypto war. You know, government backdoors, mandatory key escrows, and restrictions to what data at rest can be encrypted.

    1. Re:Collateral by jwhyche · · Score: 2

      Tell me more about this used high-end graphics cards for ridiculously cheap prices.

      --
      I read at +2. If your post doesn't reach that level I will not see or respond to it.
  9. As a Bitcoin fanboy who expects it go higher...... by grnbrg · · Score: 2, Insightful

    If you are mortgaging your house to buy Bitcoin, you're a fucking idiot. You deserve the very real chance of losing everything, but your family doesn't.

    IF Bitcoin succeeds, a value of $100k-$500k is almost certain (As a floor. No one really has a clue what value a successful Bitcoin will plateau at over the long term.) -- Too many people and not enough supply for it to be otherwise. But Bitcoin is not yet a sure thing. Crypto in general may end up a failed experiment. Bitcoin specifically could implode, and be superceded by a different crypto. And even if it does succeed -- Bitcoin has had serious drops in the past -- seeing your investment drop to 25% of current value, and not recovering for 2 years is entirely possible.

    If you've got some spare cash, and it won't cause irreparable harm if it disappears completely, sure, invest that if you think Bitcoin will succeed. But no more than that.

  10. Re:I'm Rich, Bitch by bobbied · · Score: 4, Informative

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

    --
    "File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
  11. You cannot outlaw stupid, stupid... by bobbied · · Score: 2

    Though here in the USA, the socialist utopia pushers do try.

    Folks don't seem to realize what the 2000 and 2009 crashes were about or what caused them.

    Students of history are condemned to watch while the ignorant repeat it.

    --
    "File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
  12. We are surrounded by bubbles by plopez · · Score: 5, Interesting

    I am very uneasy. There seem to several bubbles going which in aggregate or perhaps 1 to 3 happening at the same time spells disaster:

    1) Cryptocurrencies. Yes, plural.
    2) AI
    3) Financial markets
    4) Housing
    5) Student loans
    5) Health care
    6) Tech in general, a run up in price of things such as FB and Tesla.
    7) Foreign and domestic real estate

    And probably more I can't think of right now. A collapse in the NYSE exchange would have a large impact on the global economy but 2 or 3 smaller ones together might have a ripple effect causing a larger collapse. I think we live in fragile times. If you look at history there were bubbles about every 10 to 20 years after the lessons of the last collapse fades from memory. We're about due.

    --
    putting the 'B' in LGBTQ+
  13. Comment removed by account_deleted · · Score: 2

    Comment removed based on user account deletion

  14. Then they need to live with the consequences... by argStyopa · · Score: 2

    Personally, I believe it's catastrophically stupid to take a mortgage to buy bitcoin.

    I rather suspect most of the people doing that couldn't even tell you, substantially, what bitcoin is.

    It's a free society, they can do it if they want. What I really am not looking forward to is the inevitable crash/fraud/whatever, after which there will be a great hue and cry for government (ie with taxpayer money) remediation because these people were too stupid to understand the risks.

    These people were the same ones flipping houses in 2007 because of the great income potential. And now we taxpayers have spent 10 years funding saving their stupid asses.

    --
    -Styopa
    1. Re:Then they need to live with the consequences... by sheph · · Score: 2

      I know a few who lost their place to live, but very few who actually got bailed out. The banks got bailed out but the individuals did not.

      --
      I don't believe in karma, I just call it like I see it.
  15. Re:As a Bitcoin fanboy who expects it go higher... by Moof123 · · Score: 2

    Can you explain why you believe 100k-500k is "almost certain"? It is quite a wide range, and looks like arbitrary round numbers. Why not $1B?

    You also call it an investment, I thought its value proposition was as a superior currency to fiat currency?

  16. Re:I'm Rich, Bitch by GameboyRMH · · Score: 5, Funny

    No, tell him to hang onto it, it's always fun to see the repo truck pick up a supercar!

    --
    "When information is power, privacy is freedom" - Jah-Wren Ryel
  17. Re:As a Bitcoin fanboy who expects it go higher... by thebes · · Score: 2

    100k-500k is only a 5x scale. BTC has already shown it is more than capable of exhibiting far larger swings in short periods of time.

  18. Re:As a Bitcoin fanboy who expects it go higher... by grnbrg · · Score: 2

    $100k-$500k is just a number pulled out of my ass, tbh. But I don't think it's unreasonable. If Bitcoin is a success, that means it is going to see widespread global use. Whether that is for online person-to-person payments, a value store for the rich, currency for the poor, all of that, or something else. But there will only ever be 21 million tokens to go around, and several million of those are already irretrievably lost. For billions of people. $100k is only another 10X away, and there is still at least that much more potential growth. Do I agree with McAfee that it will hit $1 million by 2020? No. But I'd bet real money that in 5 years, Bitcoin is worth well in excess of $100k, OR less than $1. Probably more, but less would not surprise me. I see virtually zero chance that it's between those two (arbitrary) values.

    I have used Bitcoin as a currency -- I have exchanged it directly with others over the Internet, in exchange for hard (And legal!) goods. I expect to do so again in the future, either with Bitcoin, or whatever replaces it. But with the recent meteoric rise, and the developing issues with extremely high fees and slow transactions (which are problems already solved by other crypto currencies) I'm more about hanging on, and seeing where it goes.

    And for the record, I didn't sell my house to buy in. But I wish I had done so a year ago. :) I'd be ok being a rich fucking idiot, and hindsight is easy.

  19. Re:Bitcoin Bailout by slew · · Score: 4, Insightful

    Though I am not on the cryptocurrency bandwagon, I am glad that it is a currency that no government would be willing to bail out in the invent it crashes. So that's good news for those taxpayers that constantly bailout companies' and governments' bad decisions. So please, by all means, underwrite your mortgage for Bitcoin, I need to buy the cheap real estate on fire sales. BTW, I won't be accepting Bitcoin as rent.

    Although nobody is gonna be bailing out BitCoin, you don't seem to understand how the mortgage bailout happened.

    The 2008 failure came from unsupported counter-party risk (incl obscure things like credit default swaps). That caused liquidity issues with Lehman brothers and AIG and other insurance companies. The problem wasn't with the mortgages, per-se, but with people betting on the mortgages (e.g., the people offering to insure them based on complicated financial arrangements that proved unsound). If people are taking out mortgages to buy bitcoin, they are taking on the risk, but if corporations do this, they generally hedge with insurance contracts and re-insurance (how else would you justify complicated financial arrangements).

    The problem is that if enough cards fall down, the corporations need the payouts from the insurance contracts. If all hell breaks loose, the companies that underwrote the insurance contracts are not going to be liquid enough to pay those out. Also, even those that thought they have bought insurance for other things (e.g., not bitcoin, not sub-prime mortgages) realize that the insurance company they paid premiums to all those years will evaporate and not make good on their payouts in other areas. This is when the bail out pressure mounts. You don't bail out the mortgages, you bail out the companies that underwrote the insurance contracts (like the US bailed out AIG for $85B and loaned JP Morgan Chase $29B to buy out the insolvent Bear Stearns) and the companies that wrote the mortgages ($200B for Freddie Mac and Fannie Mae). In comparison, only a measly $24B went for direct mortgage relief...

    Fortunately, BTC is probably too small to matter today. BTC market is only $276B total vs $10T for mortgage debt (~$5T pre-Year2000). Unfortunately, the Chicago Board has opened up BitCoin Futures to ratchet things up a level. With an established futures market, it will be possible to play BTC swings w/o being limited by actual BTC holdings. BTC holding insurance contracts can be written backed by BTC futures contracts and people can speculate on those as well. We'll see how big that futures and derivatives market gets relative to the underlying BTC (in some areas, you can see 10x the market in futures/derivatives over the underlying asset).

    Things are a bunch more intertwined than anyone might imagine. Get your popcorn ready, the show is about to start....

  20. No. by jon3k · · Score: 2

    SEC Warns 'Extreme Caution' Over Cryptocurrency Investments As Many People Take Out Mortgages To Buy Bitcoin

    The original source says "people" not "many people". That's also a quote without any proof.

  21. A Pyamid of speculation by evolutionary · · Score: 3, Interesting

    People buy early and low, speculation drives demand high with no real assets backing up the worth save pure speculation. people early sell to people buying later. More people later than earlier. People at the upper end of the pyramid make crazy profits, people who buy are left holding the bag (the larger number of masses at the base supporting the profits of the top) when this balloon pops. once upon a time we had the gold standard.

    When we didn't have enough gold to back it up, so...we abandoned it for speculative currency. The one definite thing about technology, is enables us to accelerate what we normally do, making the flaws in our systems more visible. Samuel Clemens write about the stock market in Huckleberry Finn, and Sir Conan Doyle mentioned it in his writings of Sherlock Holmes as well. neither gave a pretty picture. If they could only see this...

    --
    "Imagination is more important than knowledge" - Einstein
  22. Re:Bitcoin Bailout by ahodgson · · Score: 4, Insightful

    You missed the part where the corporations knew there was no chance the insurance could pay out, but only bought it so that they could legally not have to count the debt against their balance sheet. And the part where none of those criminals went to jail.

  23. parent is a star wars spoiler please mark troll by mr.mctibbs · · Score: 2

    parent is a star wars spoiler please mark troll