Crypto investors warned by FSCA against scams packaged as investments with unrealistic returns

South Africa’s Financial Sector Conduct Authority (FSCA) issued a warning to those planning to invest in cryptocurrency or crypto-related investments. The regulator issued the latest warning amidst complaints of investors losing their money due to scams packaged as crypto investments.

“The FSCA is receiving a large number of complaints from South African investors who have lost their savings through investing in a crypto-related investment that they did not understand, or a scam packaged as a crypto investment promising unrealistic high returns,” the FSCA wrote. The regulator added the investors should be wary of firms that “overstate potential pay-outs or understate the risks.”

The FSCA reminded the public that crypto-related products are not regulated by any regulatory body in South Africa. Should something go wrong, investors will have no recourse against anyone and won’t likely get their money back.

“Investing in crypto assets, or investments and lending linked to them, generally involves taking very high risks with investors’ money, which mean that you should be prepared to lose all of your money,” the FSCA added. “There is no guarantee that crypto assets could be converted back into cash, putting consumers at the mercy of supply and demand in the market.”

Investors should also be aware of the risks posed by the high volatility of crypto prices. Except for stablecoins, there is no method to gauge the value of crypto assets as prices are mainly driven by market sentiment.

“The price of crypto assets is dictated by the underlying mood or sentiment of the general public with no underlying basis for value determination,” the FSCA wrote. “In the end, there is no guarantee that when you wish to sell, the sentiment will still exist and that buyers will even exist or be available to acquire the crypto asset from you. There is often high price volatility placing even greater financial risk to consumers.”

One way to manage the risk associated with investing in crypto assets is to limit one's exposure to this asset class. “Regardless of the level of risk which investors are prepared to accept, investors are urged to ensure that crypto assets, if purchased, should only make up a small proportion of their investment portfolio,” the FSCA said.

This suggestion is similar to the one given by the UBS Global Wealth Management when it warned clients that there is always the possibility that cryptos such as Bitcoin and Ether could go the way of Netscape and MySpace. “Investors in cryptocurrencies must therefore limit the size of their investments to an amount they can afford to lose,” UBS Wealth said.

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