If you hate reading, investing in crypto might not be for you
Social media is full of offers for crypto investments and South Africans have always been soft targets for scams that promise fantastic returns.
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Crypto-related investments are not regulated in South Africa and most people know too little about how crypto works to ensure they are not throwing their money into a deep hole of scams, never to be seen again.
“People who want to invest in crypto must know the market, but most people treat it like gambling. My advice would be if you have no financial knowledge, stay away from investing in crypto. If you cannot read and understand the crypto white paper, you do not have the required financial knowledge,” says Chris Cammack, head of content at tradeforexsa.co.za, a website that reviews regulated brokers in South Africa.
Crypto currencies are digital representations of value that are not issued by a central bank and are traded, transferred and stored electronically. They are used for payments, investments and raising capital.
A crypto project releases a white paper that offers investors technical information about the concept, as well as a roadmap for how it plans to grow and succeed. Cammack says it is important to see what to expect and who you are buying from.
Developed nations have started to look at crypto investing to see if it could be linked to money laundering and are regulating crypto exchanges, but Cammack says the infrastructure to regulate crypto properly is huge and countries need the political will to do it.
However, it is a good question to ask where does the money go. Does it go to funding terrorism? Crypto can be immoral if it is really difficult to regulate fairly and if there is ideology behind it, although regulation can alienate the industry.
He also points out that scammers use social media such as Telegram, Facebook, WhatsApp and Instagram to lure their victims. They especially like Telegram because it is anonymous. About 50% of the scams in South Africa start on social media.
Cammack says social media companies should do something about this but they do not want to be the bad guys, so government should put pressure on them to act.
People must beware of just giving their money to someone to invest in crypto. They use all kinds of complicated jargon to catch their victims, while it is simply a Ponzi scheme where the first people to “invest” are paid their returns from the “investments” of people who join later.
Scammers usually do not know anything about crypto currencies and how to invest in them, Cammack says. As crypto is anonymous, it is impossible to reclaim any funds.
The problem is that you will not know if the company encouraging you to invest in crypto is legitimate, because it is not regulated by the Financial Sector Conduct Authority (FSCA), which is also bad for South Africa’s reputation, such as the Mirror Trading International (MTI) scheme, which was called the biggest scheme ever in the world.
Why do people choose to invest in crypto instead of other regular investments? According to Cammack, people believe that crypto will offer them freedom from government. Unfortunately, they then also give up their right to be protected by government.
People who invested in MTI are cross because government is not moving fast enough to get their money back, but they invested in an alleged illegitimate scheme.
The FSCA already warned people in February that crypto currencies are not covered at all in South Africa and that you will not get your money back if something goes wrong.
The FSCA receives a large number of complaints from local investors who have lost their savings through investing in a crypto-related investment that they did not understand or a scam packaged as a crypto investment promising unrealistically high returns.
The FSCA says people who want to invest in crypto currency should keep in mind that:
People can take these precautions if they have money to invest in crypto, Cammack says:
The FSCA warns people that:
The FSCA is considering declaring crypto assets as a financial product, which would give the FSCA jurisdiction over these transactions and enable the authority to protect consumers.
If you really want to invest in crypto, rather do it yourself on platforms such as Luno. And remember: “if an investment looks too good to be true, it usually is”.
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