The news is full of stories about investing in cryptocurrencies such as Bitcoin and selling a story about how to become a millionaire overnight.

But the Financial Markets Authority (FMA) regulator has seen a number of complaints from investors who’ve lost money using cryptocurrency exchanges and is concerned many investors do not understand the risks.

 In recent comments to the NZ Herald the FMA issued strongly worded warnings to potential Bitcoin and cryptocurrency investors.

3 things you need to know about cryptocurrencies like Bitcoin

  1. They're high risk and highly volatile – the price can go up and down very quickly

  2. They're not regulated in New Zealand

  3. Cryptocurrencies, crypto-exchanges and the people that use them are often the targets of hacking, online fraud and scams

Understanding the risks

Many overseas cryptocurrency exchanges are unregulated and operate exclusively online – with no connection to New Zealand.  This makes it hard to find out who is offering, exchanging, buying or selling it. It also makes it unlikely you’ll recover your money if things do go wrong.  

Using cryptocurrencies may make you a target for scammers or businesses selling high-risk investments.

Things to look out for

Cryptocurrency value can change quickly

There are lots of cryptocurrencies available. If one becomes popular its value may increase quickly, but its value can also suddenly drop, sometimes permanently.

The risk increases if you invest in the futures market through contracts for differences (CFDs) where you make (or lose) money by predicting how the price of cryptocurrencies might change. These products are typically offered with leverage so you may only pay a portion of the value of your trade upfront but if you lose, you will need to repay the full amount borrowed, plus any amount you’ve lost. Even small movements in currency values can have a big impact on any gains or losses you make.

Your ‘coins’ may be stolen

All online transactions are at risk of cyber-crime. The cryptocurrency in your digital wallet can be stolen just like the money in your real wallet – with very little chance of it being returned. Cryptocurrency market places and exchanges can also be at risk of cyber-attack. 

CERT NZ has some great information on ways you can keep your digital wallet more secure. 

Cryptocurrencies aren’t widely accepted

Cryptocurrencies have less practical value than money which can be used to buy all goods and services.

Make sure any New Zealand exchange you use:

  • is registered on the Financial Service Providers Register (FSPR)

  • is a member of a dispute resolution scheme

  • holds your New Zealand dollars in a trust account.

Know what you’re getting into, including how the currency is stored and transferred, and how to get your money back.

Store your login details securely. If you forget them or enter your details incorrectly, you may not be able to access your money permanently.

Understand how to access a payment record. You may need to prove you’ve made a payment – to get a refund for example.

Scamwatch has issued an alert about cryptocurrency scams.

Find out more

For more information about the risks of investing in cryptocurrencies have a look at:

 Source: Financial Markets Authority