Cryptocurrency Investments and your Rights

The concept of digital money has been in existence for over a decade now, yet it has only become popularized since 2017. In April 2021, the cryptocurrency market topped $2 trillion in its valuation for the first time, and Bitcoin is currently valued at 1.15 Trillion dollars in total. As per the current status quo, a growing number of investors are putting their faith in cryptocurrency assets. Cryptocurrency value may also appreciate in the immediate future, with the emergence of e-wallets and cashless payments.

Crypto investments can be rewarding, but they are also prone to unexpected market crashes. We have had a number of clients reach out to us after losing large sums in “up and coming” cryptocurrency tokens which subsequently “crashed” or even disappeared. Some of these offerings may have been mismanaged or involved serious fraud. Therefore, investment in cryptocurrency must be undertaken with care and diligence.

It is important to understand what cryptocurrency actually is. At the current time, it is a means of exchange that is decentralized. It functions more like a digital “check book” system rather than paper currency in many respects. For example, every time a transaction occurs, a hash (a sequence of numbers and letters of a particular length) is generated with respect to the specific transaction, and a ledger entry is created in a decentralized database, to verify the transaction. This is supposed to facilitate the verification, security and validation of transactions. In this way, cryptocurrency can be a medium for facilitating international and cross border financial exchanges in a decentralized and efficient manner.

However, the usefulness and popularity of cryptocurrency makes it prone to speculation. Therefore, it is not uncommon to see the value of major cryptocurrencies fluctuate wildly, leading to thousands of dollars of losses, or thousands gained, sometimes overnight. This can make cryptocurrency markets quite volatile. In addition, many so called “up and coming” crypto markets can collapse, if they do not manage their incoming or outgoing transactions appropriately. Depending on the terms and conditions in place with such exchanges, as well as the degree of negligence of the crypto exchange’s employees, an investor could face the prospect of losing all their money. In such cases, the money would literally disintegrate or disappear. We have had clients who have put money into a crypto market in return for crypto assets, only to see the assets depreciate in value so much, that the transaction was effectively equivalent to flushing money down the toilet (by the bucket loads). One example of this is with the cryptocurrency Torque. The Singapore based currency issuer went bust, when some of their employees engaged in “unauthorized trades.” These unauthorized trades have led to the loss of life savings for some investors, without the hope of any compensation (read more here). Torque, which is registered in an offshore jurisdiction, is now undergoing bankruptcy proceedings. Therefore, the legal recourse available to investors is to sit and wait, with limited hope of recovering much.

When investing in cryptocurrency, it is very important to undertake diligent research. Not only should you research the historical performance of the cryptocurrency you are intending to purchase (i.e. whether it has been in the market for long, and whether its value is consistent over time), it is also very important to find out where the cryptocurrency owner or issuer (i.e. the underlying company) is located. You should also study the terms and conditions associated with investing very carefully. Only once you are fully aware of the risks involved should you make the plunge. Otherwise, you may end up flushing your funds into a crypto black hole!

(for any advice on your rights or risks with respect to financial investments, get in touch with our expert asset management team at info@borderlesscounsel.com today!)