CFTC Issues Customer Cryptocurrency Advisory

US regulator CFTC issues customer cryptocurrency advisory, where the authority points out the key factors that influence cryptocurrencies’ value. The regulator has warned investors against rushed decisions to buy cryptos.

17 July, AtoZ Markets At the very beginning of this week, the US Commodity Future Trading Commission (CFTC) has issued a customer advisory regarding cryptocurrencies. 

CFTC Issues Customer Cryptocurrency Advisory

The regulator has warned the US residents to exercise caution and conduct research prior to buying cryptocurrencies. The US watchdog has stated:

“Understand what rights are attached to the coin or token being sold, and what underlying factors could affect its value. Be especially wary of promises or guarantees of future value.”

In its advisory, the regulator has also referred to the “network effect,” which many projects have mentioned will lead to an increase in the value of their tokens. According to the regulator, the market for the digital currency is still quite young. The CFTC stated that there is no widely accepted standard for determining a value of a particular digital coin. The regulator adds:

“This includes coins or tokens sold today with the claim that they can be used to purchase goods, services, or platform access in the future.”

The CFTC writes that the decision to purchase digital coins and tokens should not be based only on the expectations to sell them at a higher price later. As per the regulator, this strategy is considered speculative and carries a considerable risk. Moreover, the US watchdog has highlighted the risk of potential fraud in the cryptocurrency market. 

Factors to consider before buying a cryptocurrency

In its advisory, the CFTC has outlined a list of factors that can impact the current and long-term value of a particular token:

  • The potential for forks in open-source applications that could split away market participants, increase the number of digital coins, or make your coins obsolete.
  • Decreasing mining or validation costs (if the price is tied to those factors).
  • Acceptance of other currencies, coins, or tokens for offered goods and services.
  • The link between the value of a digital coin or token and the offered product or service.
  • Adoption of the digital coin or token as a broad medium of exchange or store of value.
  • Future competitors or technological changes that could disrupt the underlying business.
  • Future demand or uses for an application, network, product, or service.
  • Liquidity in the market for a specific digital coin or token.
  • Changes to the underlying technology that could devalue your digital coins or tokens.
  • Risk of theft from hacking.

The CFTC has also urged investors to “conduct extensive due diligence” and “before investing in an ICO, ask whether the digital coins or tokens are securities and if the offering is registered with the Securities and Exchange Commission (SEC).” 

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