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New York Blasts Crypto Market as ‘High-Risk’ and ‘Unstable’
Erik Larson
2 March 2021, 00:52 GMT+8
Letitia JamesPhotographer: Andrew Harrer/Bloomberg
New York’s top law enforcement officer issued a scathing statement on the cryptocurrency market, warning consumers about its susceptibility to “speculative bubbles” and abuse by criminals.
“Cryptocurrencies are high-risk, unstable investments that could result in devastating losses just as quickly as they can provide gains,” Attorney General Letitia James said Monday in an investor alert.
It’s the strongest language James, who has taken several recent enforcement actions in the sector, has used to describe the rapidly evolving industry. Her warning comes after Bitcoin, the world’s largest cryptocurrency, quadrupled last year and has been hitting new highs this year.
“The recent dramatic run-up in price of virtual currencies (especially bitcoin) promises the lure of unrealistic returns and has opened the door for con artists and cheats,” James said.
Read More: Bitcoin Jumps as Citi Expresses Optimism, Risk Assets Rebound
But Eric Turner, director of research at Messari, said the attorney general was overstating the concerns. Messari provides research on the cryptoeconomy to investors, regulators and the public, according to its website.
James’s statements will “scare people” instead of “genuinely educating them about cryptoassets,” Turner said. He pointed to Goldman Sachs Inc.’s reopening of its crypto desk and other large institutions rolling out tools like trading and custody as evidence that James wasn’t on the right track.
“The fact is crypto is becoming a multitrillion-dollar space and creating high-paying jobs around the world,” Turner said. “If New York continues to treat the industry with unreasonable hostility you’ll see all of this opportunity pass the state by.”
All of the world’s cryptocurrencies have a $1.47 trillion market cap now.
James said trading in virtual assets exposes investors to increased chances of market manipulation as well as conflicts of interest among trading platform operators.
“Many operators of virtual currency trading platforms are themselves heavily invested in virtual currencies, and trade on their own platforms without oversight,” she said.
She warned investors that cryptocurrencies can be difficult to cash out of and offered limited protection from fraud.
“Virtual currency trading platforms operate from various places around the world, many of which are inaccessible to American law enforcement,” she said.
Wild SwingsJames highlighted the volatility of the currencies, which she said are “easy to create” and spread.
“Their underlying value is highly subjective and unpredictable,” she said. “As a result, prices can swing wildly upward and crash without warning or any change in the real economy.”
James, a Democrat, issued a separate warning to brokers, dealers, salespeople and investment advisers that they could face “both civil and criminal liability” if they fail to register with the state when doing business with virtual currencies.
The dual warning to investors and the industry is an effort at “leveling the playing field” amid examples of industry participants taking unnecessary risks with investors’ money, she said.
Crypto exchange Bitfinex reached a settlement with James last month over allegations that it hid the loss of commingled client and corporate funds and lied about reserves. Without admitting or denying wrongdoing, the officials who control Bitfinex and the affiliated stablecoin Tether agreed to pay $18.5 million and provide the state with quarterly reports on the composition of Tether’s reserves for the next two years. The companies will end all trading activity with New Yorkers.
Read More: Bitfinex Settles New York Probe Into Tether, Hiding Losses
“All investors should proceed with extreme caution when investing in virtual currencies,” James said. “We will not hesitate to take action against anyone who violates the law.”
— With assistance by Olga Kharif, and Dave Liedtka
(Updates with researcher’s comment in fifth paragraph.)
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