Cryptocurrency caution: buyers beware the cybercash hype
'By the time taxi drivers and your grandmother are talking about something, it’s probably a bubble'
Ever since bitcoin's meteoric rise in late December, an influx of people have decided to buy some digital coin — overwhelming some B.C. brokers who apologized for delays, backlogs and, in one case, a freeze on new registrations.
Entrepreneur Robert Meister helped one Vancouver payment processor get a foothold and saw "significant gains" in all cryptocurrencies. He said there are huge opportunities, but people need to understand what they are investing in.
"I've had my parents ask me. Should I be investing? I can't say yes or no," he said.
It's about so much more than bitcoin now.
Show me the $
Bitcoin isn't a physical coin but a digital currency invented in 2009.
People scoffed at the concept of bits of computer code assigned a monetary value.
Then bitcoin hit a peak value of $24,000 in late 2017.
Now there are more than 1,300 cryptocurrencies worldwide.
Services offering to help people buy and trade the latest initial coin offering or ICO are proliferating.
But not all futurists embrace this.
University of British Columbia Entrepreneurship Professor Marc-David Seidel is a cryptocurrency skeptic.
"I would never touch them," he said.
He's wary about the companies set up to help trade this currency.
He said buyers are required to hand over the key to their digital wallet to strangers running untested processing companies and that's precarious.
Crypto-exchanges are not regulated like banks.
Depending where they are based, they may not be regulated at all.
So, if a deal goes sideways, the buyer may end up having to sue wherever the seller or brokerage is based, which can be expensive and fruitless.
In B.C., cryptocurrencies are usually considered securities.
A security is something bought as an investment on the expectation of turning a profit.
"Anything, from an orange to a chinchilla, can be a security. It's when you are buying a piece of somebody else's dream," said Cristie Ford, financial regulation expert with the University of British Columbia's Centre for Business Law.
Companies that trade them are required to disclose basic information to the B.C. Securities Commission.
But despite disclosures, the buyer is left to decode and assess the risks.
"It's not the job of a securities commission to test whether or not you are investing your money in something sound. They don't kick the tires on a cryptocurrency. And they don't check whether or not [an exchange] is a safe place for people to put their money. That's just not their job," said Ford.
She fears the current digital coin craze feels hype-driven.
"It doesn't feel very different to me than 1999 and the dotcom boom. By the time taxi drivers and your grandmother are talking about something, it's probably a bubble," said Ford.
Ripe for fraud
Last year the head of the U.S. Securities and Exchange Commission went even further, warning cryptocurrency investors of scams and criminal activity in the sector and urging them to be sure they were safe from theft and hacking.
"You can lose a significant amount of money in a very short period of time without you even knowing. Not really based on the fundamentals of economics or even what's going on in the world," said Meister.
He believes it can be navigated with the help and experience of guides or brokers.
And there is money to be made.
But Seidel offers an alternative plan.
Skip it, until it's less volatile.
He's watched the cryptocurrency world unfurl at a furious pace.
Though he sees great promise in the emerging financial form, he says people who need help buying it are over their heads.
- Mt Gox CEO facing trial in Japan as bitcoin gains traction
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He points to disasters like Mt. Gox, a Japanese firm that was the world's leading bitcoin exchange before a hacker breach led to its collapse in 2014 — and loss claims of an estimated $2.4 trillion — more than the annual gross domestic product of France.
So, for now even some of the most tech-savvy futurists, like Seidel, are taking a pass, just in case profits dissolve into ether instead of Ethereum.