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MADISON – The Wisconsin Department of Financial Institutions (DFI) cautions investors about risks associated with interest-bearing cryptoasset and cryptocurrency accounts.
“Investors should be cautious and skeptical of investment offers that sound ‘too good to be true’ or that offer guaranteed high returns with little risk. All investments carry the risk that some or all of the invested funds could be lost. High-interest rates could often indicate high risks,” DFI Secretary Kathy Blumenfeld said in a news release Wednesday.
DFI reports that a growing number of companies offer so-called “deposit” account products that promise to pay high rates of interest on deposits of cryptocurrencies (such as Bitcoin, Litecoin, Primecoin and others). When an investor makes a deposit, they typically exchange their cryptocurrency for a promise by the issuing company or the borrower for a return of the same amount of cryptocurrency plus interest whenever the investor requests a withdrawal of the invested funds or at the end of a fixed term.
However, these interest-bearing accounts are generally much riskier than the traditional savings accounts offered by banks and credit unions. DFI notes that deposits made by investors are only denominated in cryptocurrency. Neither the Federal Deposit Insurance Corp. (FDIC) nor any other governmental agency insure deposits in cryptocurrency interest-bearing accounts. In addition, the companies that offer these cryptocurrency accounts do not have access to the liquidity facilities that exist in the regulated banking system to protect depositors.
As with all investments, before making any financial decisions, DFI encourages investors to do their homework, ask questions, and contact DFI’s Division of Securities at (608) 266-2139 or email DFISecurities@dfi.wisconsin.gov for more information.
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