SEC head cautions investors about cryptocurrencies

Securities and Exchange Commission Chairman Jay Clayton took his strongest stance on cryptocurrencies to date, warning investors to be skeptical of the rapid rise in its value, The Hill reports.

Mr. Clayton, who did not name any specific cryptocurrencies by name although attention in the past several months has focused on Bitcoin, Ethereum and Litecoin, said investors should be wary of promises of "fortunes" from their recent value spikes.

“A number of concerns have been raised regarding the cryptocurrency and [initial coin offering] markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation,” Mr. Clayton said Monday, according to The Hill.

Although cryptocurrencies have been hailed as a highly secure financial transaction engine where the risk of fraud is low, the SEC has yet to regulate them. Mr. Clayton noted that this lack of regulation, coupled with cryptocurrencies' ease of transfer between countries, means the SEC "may not be able to effectively pursue bad actors or recover funds," he told The Hill.

Forty percent of Bitcoin is held by about 1,000 people, and Ethereum, the second largest cryptocurrency, is controlled by an even smaller number of investors. This is what makes cryptocurrency markets so vulnerable to rapid swings — if small groups of investors collude to manipulate markets.

Last week, Bitcoin hit a record high as it surpassed the $16,000 mark, representing a more than $10,000 climb since last month. Ethereum, which was valued around $440 Dec. 6, is currently valued at $636, according to Coinbase, a cryptocurrency exchange. Litecoin is listed at $281, compared to $95 one week prior.

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