Bitcoin suffered what analysts called a “flash crash” over the weekend, sending the king of crypto sliding nearly 14% on Saturday -- from $61,057 to $52,829 -- before recovering to $56,216.
The hit Bitcoin took was reportedly set off by an unconfirmed Twitter rumor that the U.S. Treasury was going to crack down on money laundering schemes involving cryptocurrencies.
Cryptocurrency investors are quickly finding out how volatile these assets are. Those who have held on tightly and weathered the storms have generally profited. As an example, those who bought bitcoins recently probably have a hard time grumbling about an $8,000 loss when they’ve made double that in the last few months.
Fevered pitch or cool-headed patience?
Investors were buying cryptocurrencies at a fevered pitch last week. Most of the crypto watchers had their eyes set on Coinbase going public, many with their fingers crossed that it could be a watershed moment for the industry after suffering doubt from financial regulators and Wall Street. There was also a wild 500% rally in Dogecoin — a peer-to-peer digital currency that started out as a joke but is starting to become more popular.
Despite the optimism, the Securities and Exchange Commission (SEC) warns consumers to let that fever cool off a bit before diving in. The agency has already filed actions against five parties, including cryptocurrency app developers and individuals who may have defrauded hundreds of retail investors out of more than $11 million through two fraudulent and unregistered digital asset securities offerings.
“I can’t tell you how many people have come up to me and asked if they should invest in bitcoin. I recently conducted an investor education program at a retirement community and a woman said to me, “My children keep telling me I need to hurry up and invest in bitcoin—is it safe, have I already missed the boat?” stated Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy.
Schock said it’s unlikely that the SEC or other regulators will be able to help consumers recover their investment if fraud occurs. So, for now, it’s important to be cautious when considering buying into the cryptocurrency hype.
“Cryptocurrencies may be today’s shiny, new opportunity but there are serious risks involved. Proceed with caution, do your research, evaluate your financial goals and most importantly, don’t flip a coin when you’re making investment decisions. Before you invest, go to Investor.gov to learn how to invest wisely and avoid fraud,” she advised.