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Cryptocurrency dangers

Published on 11-20-2023

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Big return potential but with big risk of fraud and loss


I’m not a fan of crypto, but I must admit that those who got in early did well. Recently Jon Erlichman of BNN Bloomberg noted that $10,000 invested a decade ago in Bitcoin is now worth $2.1 million. That’s a much better return than Apple,, Microsoft, Tesla, or anything else you might think of.

And Bitcoin is still doing well. In the past year, it has gained almost 40%, although it is still well down from its all-time high in the fall of 2021.

The problem is that Bitcoin and the other cryptos are part of a largely unregulated business that’s akin to a financial Wild West. And, as Canadian investors have discovered, it’s a dangerous place to be putting your money these days.

The latest evidence came in a report from the little-known Ombudsman for Banking Services and Investments (OBSI). The report states that crypto complaints were up last year, with the majority of them alleging fraud.

The sparse details were published recently in the 2022 annual report of the Joint Regulators Committee (JRC), which includes representatives of financial regulators across Canada.

“Most of these cases (85%) were related to fraudulent activities whereby the client was coerced or tricked into granting a third party access to the client’s account and crypto assets were transferred to a third-party wallet,” the report said.

“To date, OBSI has observed that despite warnings and fraud reduction steps taken by firms, such instances of fraud continue to be common. The JRC continues to monitor this trend and discuss opportunities for risk reduction, including with OBSI.”

That’s it. The report does not provide any information about how many crypto complaints were received or the amount of money involved. Nor is any plan of action suggested beyond the lame “continues to monitor” statement. Investors are left on their own.

Meanwhile, more crypto dealers are being hauled before the courts on a range of charges. The biggest case involved flamboyant ex-billionaire Sam Bankman-Fried. He was charged with fraud, money laundering, and violating political contributions laws in respect of his FTX cryptocurrency exchange, and was found guilty.

Bankman-Fried’s story is a fascinating one and you’ll find lots of details in the new book Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud, by Ben McKenzie. He was one of the major players in the crypto industry, having set up a global empire with FTX that he ran from his luxury condo in the Bahamas.

In what U.S. National Public Radio described as “explosive” testimony, his former girlfriend and business associate, Caroline Ellison, told the court how the defendant would repeatedly make speculative investments and then divert clients’ money to cover losses.

Bankman-Fried is not the only crypto mogul to face legal problems. The U.S. Commodity Futures Trading Commission (CFTC) recently filed fraud and other charges against Stephen Ehrlich, the former CEO of Voyager Digital. He is accused of misleading investors about the risk levels involved in schemes he was promoting,

Voyager promoted itself as a safe haven for crypto assets stored on its platform. Instead, the company, which was once valued at more than US$2 billion, is said to have “recklessly” lent money to several companies that went bankrupt. Voyager Digital is now also bankrupt as well. Its website now serves as a portal for creditors seeking information about when (or if) they’ll get any money back.

According to a recent report in The Wall Street Journal, the U.S. government now holds US$5 billion in Bitcoin. This isn’t because Washington has been speculating in cryptocurrencies. The assets were seized by several government agencies such as the IRS from convicted crypto criminals and illicit companies operating on the dark web, such as Silk Road.

It is estimated the global crypto market is worth at least US$1 trillion. The U.S. is actively moving to combat illegal practices where it has jurisdiction. Europe has created a new regulatory framework for crypto trading that will take effect in December 2024.

As for Canada, our regulators are “monitoring” the situation. While they do, more people are being scammed. CTV National News recently aired an interview with a man who lost about $400,000 when he couldn’t withdraw his money from the cryptocurrency exchange he used. He told CTV he went public with his story to warn other investors of the dangers involved.

So be warned!

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.

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Notes and Disclaimer

Content © 2023 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.


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