Cryptocurrency Disclosure
Investing in cryptocurrencies involves significant risks. Please carefully read the following which details risks to you as an investor when investing and trading in cryptocurrencies.
Cryptocurrencies and virtual currencies are not legal tender in the United States and many question whether they have intrinsic value. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. The value of cryptocurrency may be derived from the continued willingness of market participants to exchange fiat currency for cryptocurrency, which may result in the potential for permanent and total loss of value of a particular cryptocurrency should the market for that cryptocurrency disappear. Before investing, please understand that there is no assurance that a person who accepts a cryptocurrency as payment today will continue to do so in the future.
The price of a virtual currency is based on the perceived value of the virtual currency and subject to changes in sentiment, which make these products highly volatile. Certain virtual currencies have experienced daily price volatility of more than 20%. Before investing, you should consider all risks associated with purchasing cryptocurrencies, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. If you are not prepared to lose your entire invested principal or deposit, then cryptocurrency trading is therefore not appropriate for you. We do not advise you to fund your investments with any funds which may affect your retirement savings, student loans, mortgages, emergency funds, or any funds set aside for other purposes.
Virtual currencies and related “wallets” or spot exchanges include hacking vulnerabilities and a risk that publicly distributed ledgers may not be immutable. A cybersecurity event could result in a substantial, immediate, and irreversible loss for market participants that trade virtual currencies. Even a minor cybersecurity event in a virtual currency is likely to result in downward price pressure on that product and potentially other virtual currencies. By using our services, you knowingly and voluntarily assume this risk.
Several factors may affect the price of virtual currencies, including, but not limited to: supply and demand, investors’ expectations with respect to the rate of inflation, interest rates, currency exchange rates or future regulatory measures (if any) that restrict the trading of digital currencies or the use of virtual currencies as a form of payment. There is no assurance that any virtual currency will maintain its long-term value in terms of purchasing power in the future, or that acceptance of virtual currency for payment by mainstream retail merchants and commercial businesses will grow.
Please understand: THERE IS NO REGULATED CENTRALIZED CLEARING OR SETTLEMENT FOR CRYPTOCURRENCY TRANSACTIONS, MARKETS OR EXCHANGES. Virtual currencies can be traded through privately negotiated transactions and through numerous virtual currency exchanges and intermediaries around the world. The lack of a centralized pricing source poses a variety of valuation challenges. In addition, the dispersed liquidity may pose challenges for market participants trying to exit a position, particularly during periods of stress. Additionally, virtual currency balances are generally maintained as an address on the blockchain and are accessed through private keys, which may be held by a market participant or a custodian. Although virtual currency transactions are typically publicly available on a blockchain or distributed ledger, the public address does not identify the controller, owner or holder of the private key. Unlike bank and brokerage accounts, virtual currency exchanges and custodians that hold virtual currencies do not always identify the owner. The opaque underlying or spot market poses asset verification challenges for market participants, regulators and auditors and gives rise to an increased risk of manipulation and fraud, including the potential for Ponzi schemes, bucket shops and pump and dump schemes.
Virtual currency exchanges, as well as other intermediaries, custodians and vendors used to facilitate virtual currency transactions, are relatively new and largely unregulated in both the United States and many foreign jurisdictions. Virtual currency exchanges generally purchase virtual currencies for their own account on the public ledger and allocate positions to customers through internal bookkeeping entries while maintaining exclusive control of the private keys. Under this structure, virtual currency exchanges collect large amounts of customer funds for the purpose of buying and holding virtual currencies on behalf of their customers. You should be aware, that the opaque underlying spot market and lack of regulatory oversight creates a risk that a virtual currency exchange may not hold sufficient virtual currencies and funds to satisfy its obligations and that such deficiency may not be easily identified or discovered. In addition, many virtual currency exchanges have experienced significant outages, downtime and transaction processing delays and may have a higher level of operational risk than regulated futures or securities exchanges. Please keep this in mind when investing in cryptocurrencies.
In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing like the Federal Deposit Insurance Corporation (“FDIC”) or the Securities Investor Protection Corporation ("SIPC”). In the event of an exchange becoming financially-troubled, your investment is not protected against the liquidation of an exchange.
Virtual currencies currently face an uncertain regulatory landscape in the United States and many foreign jurisdictions. In the United States, virtual currencies are not subject to federal regulatory oversight but may be regulated by one or more state regulatory bodies. In addition, many virtual currency derivatives are regulated by the CFTC, and the SEC has cautioned that many initial coin offerings are likely to fall within the definition of a security and subject to U.S. securities laws. One or more jurisdictions may, in the future, adopt laws, regulations or directives that affect virtual currency networks and their users. Such laws, regulations or directives may impact the price of virtual currencies and their acceptance by users, merchants and service providers. As new regulations are introduced, clients must be aware that a change in domestic or international laws may materially impact their investment including its taxation or cost.. You may be required to pay taxes on any returns and/or increases in value of your investments so you should seek independent tax advice.
The relatively new and rapidly evolving technology underlying virtual currencies introduces unique risks. For example, a unique private key is required to access, use or transfer a virtual currency on a blockchain or distributed ledger. The loss, theft or destruction of a private key may result in an irreversible loss. The ability to participate in forks could also have implications for investors. For example, a market participant holding a virtual currency position through a virtual currency exchange may be adversely impacted if the exchange does not allow its customers to participate in a fork that creates a new product. We encourage all investors to review our page titled BLOCKCHAIN DISCLOSURE to ensure your understanding of these risks.
Many virtual currencies allow market participants to offer miners (i.e., parties that process transactions and record them on a blockchain or distributed ledger) a fee. While not mandatory, a fee is generally necessary to ensure that a transaction is promptly recorded on a blockchain or distributed ledger. The amounts of these fees are subject to market forces and it is possible that the fees could increase substantially during a period of stress. In addition, virtual currency exchanges, wallet providers and other custodians may charge high fees relative to custodians in many other financial markets. These added fees could possibly reflect the return on your investment. Investors should always carefully consider these fees, as well as, monitoring your investment at all times.
Additionally, all investors should review the following regulatory advisories on cryptocurrency trading and investing which provide education on the risks associated with cryptocurrency trading: