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Are Cryptocurrencies Safe Investments?

February 14, 2018 Blog

Bitcoin has made a lot of people a lot of money because it has increased substantially in value over time.  While its future value is uncertain, there is no denying that those who bought Bitcoin for almost nothing just a few short years ago have made a tremendous return on their investment.

Because of the success of Bitcoin, many people want to invest in cryptocurrencies but think Bitcoin is too expensive or are afraid Bitcoin has run its course.  As a result, many investors are looking for new alternative cryptocurrencies.   Unfortunately, it may be unclear whether altcoins are actually a sound investment or are essentially just gambling with little hope of recovering invested funds.

A cryptocurrency lawyer can provide guidance on legal issues related to the issuance of new cryptocurrencies and on your rights as an investor.

Are Cryptocurrencies Safe Investments?

Whether cryptocurrencies are a wise investment or not is a decision all investors will need to make independently after considering the fundamentals of the coins they are investing in.

For a currency like Bitcoin that has been around for a long time, there is a risk that the currency will fail or that it will decline in value, just like any other investment. However, there is, at least, a history behind the coin and a proven record of transactions that suggest the blockchain technology backing the currency actually works.

Unfortunately, because of the cryptocurrency craze, there have been endless examples of investment opportunities in companies and products that aren’t really even attempting to be legitimate currencies but that have been able to ride the blockchain wave.

One example: Long Island Ice Tea changed its name to Long Island Blockchain and shares of the unprofitable company rose 289 percent, despite the fact that it did not actually begin developing blockchain technology. Instead, the beverage company indicated it would seek to partner with or invest in companies developing blockchain.  And, in another instance, a Bitcoin parody called Dogecoin, reached a value of more than a billion dollars even though the coin was created only to mock the cryptocurrency.

Investors need to ensure they are researching carefully and that they are making investments only in legitimate cryptocurrencies with solid technologies behind them.  This is easier said than done because there is little regulation of the cryptocurrency marketplace. Initial coin offerings (ICOs) are not as well regulated or as well structured as Initial Public Offerings (IPOs) that occur when companies are taken public and shares are made available to investors for the first time.

Regulators are struggling to catch up with the blockchain craze and to determine the form and scope of the rules they will put in place – and in the meantime, investors are essentially operating in an almost wild-west environment where due diligence is key.

Those who wish to invest in altcoins should make certain to do careful research and to get legal advice as needed. Even investors in more established cryptocurrencies like Bitcoin would do well to talk with a cryptocurrency lawyer to get a full picture of the legal issues surrounding any cryptocurrency investment they are considering making.