Cryptocurrency Risk Disclosure
What is Cryptocurrency?
Cryptocurrency is a digital representation of value that serves as a medium of exchange, a unit of account, or a store of value. Unlike traditional currencies, it lacks legal tender status and is not backed by any government or central bank. Its value is driven solely by market forces of supply and demand, resulting in higher volatility than fiat currencies.
The value of a cryptocurrency hinges on market participants’ willingness to trade fiat currency for it. If that market disappears, the cryptocurrency could lose all value permanently. Cryptocurrencies are not insured by the FDIC or SIPC, and legislative or regulatory changes at the state, federal, or international level could negatively impact their use, transfer, exchange, and value.
Risks of Purchasing Cryptocurrencies
Buying cryptocurrencies involves risks such as volatile price swings, flash crashes, market manipulation, and cybersecurity threats. Unlike equity, options, futures, or forex markets, cryptocurrency exchanges lack equivalent regulatory oversight and customer protections. There’s no guarantee that entities accepting cryptocurrency today will continue to do so tomorrow.
Investors must research each cryptocurrency and its platform thoroughly before investing. Cryptocurrencies can be complex, with features and operations that are hard to understand or evaluate. They are susceptible to attacks on their security or blockchain, including those leveraging significant computing power. Transactions are finalized when recorded on a public ledger, which may not match the initiation time.
Trading Risks
Trading cryptocurrencies requires market knowledge and pits you against global traders. You need sufficient experience before engaging in significant trading. A cryptocurrency’s operation can change unexpectedly due to updates, attacks, or events like forks, rollbacks, airdrops, or bootstraps, potentially diluting or redistributing its value.
Trading is highly risky and often unsuitable for funds from retirement savings, student loans, mortgages, emergency reserves, or other critical needs. It can result in rapid, substantial losses due to price volatility. Transactions are typically irreversible, meaning losses from fraud or errors may be unrecoverable. Cryptocurrencies also face heightened risks of fraud and cyberattacks.
Market and Technical Risks
In certain conditions, liquidating a cryptocurrency position quickly at a fair price may be challenging or impossible—e.g., during sudden market drops, trading halts due to news or unusual activity, or changes in the underlying system. Greater volatility increases execution risks. Additional losses may stem from system, hardware, software, network, or data issues.
Further Information
Federal agencies have issued advisories on virtual currency risks. For more details, see: