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Phoenix, AZ 85007-2996
What Every Investor Should Know
What is virtual currency? Unlike traditional currency, these alternative currencies are not typically backed by tangible assets, are not issued by a governmental authority and are subject to little or no regulation. The value of virtual currencies may be highly volatile and the concept behind the currency is difficult to understand even for sophisticated financial experts. Investors should be aware that investments that incorporate virtual currencies present very real risks.
The Commission’s Securities Division urges investors not to make substantial investments into this type of risky investment without first considering some important issues. Some common concerns investors should consider:
Virtual Currencies as an Investments
Commodities—Cryptocurrencies or virtual currencies can be used as an investment in essentially the same way as gold and other commodities. Investors can buy virtual currency with the expectation of being able to sell them at a higher price in the future. This can be highly speculative since the value of virtual currencies can fluctuate dramatically in the same day and each exchange can value the virtual currency differently. For details, see a NASAA alert about Commodities.
ETF—A traditional Exchange Fund (ETF) tracks a basket of stocks or a commodity and trades in a stock market. An "ETF" can be composed only of virtual currencies, each with a value that fluctuates differently. For details, see a NASAA alert about ETFs.
Derivatives—A derivative is a financial product with a value that is derived from a principal asset (such as stocks, bonds, or "Bitcoins") as contained by agreement between the parties. The most common types of derivatives are futures, guarantees, convertible bonds and exchange or exchange agreements. In those cases, the investor bets on the change in the price of the virtual currency. For details, see a NASAA alert about derivatives.
Commodity Futures Trading Commission (CFTC)
North American Securities Administrators Association (NASAA)
US Securities and Exchange Commission (SEC)
Financial Industry Regulatory Authority (FINRA)
The information provided on this website is not comprehensive, is not offered as legal or investment advice, and is not a substitute for competent legal or financial counsel. The Securities Division provides this information to give you an overview of the topics discussed. You should not rely on the accuracy of this information, but should carefully review all applicable statutes and regulations with the assistance of legal counsel.
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