Look Out, Investors: Cryptocurrency Values Slide As Warnings Take Off

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found more than 200,000 of the 850,000 bitcoins allegedly stolen from it, and the creditors who lost deposits in the heist now want their share of those coins. But Mt. Gox shareholders might be able to pay the creditors only the dollar amount each bitcoin was worth when the exchange went into bankruptcy in 2014—-less than $500. They could then sell the recovered bitcoins at current rates and possibly reap billions. Japan’s bankruptcy laws might permit this.

A similar uncertainty now faces users of the Tokyo-based Coincheck exchange, which revealed Jan. 26 that it had suffered the theft of millions of tokens called XEM, valued at up to $530 million, Marketwatch reported. Coincheck’s CEO has said the company will help customers recover assets.

The SEC has issued alerts advising prospective buyers of cryptocurrency assets to find out who’s behind the transactions, how much trading data is made public, and what happens if something goes wrong. SEC chairman Jay Clayton, in a wide-ranging personal advisory to Main Street investors as well as market professionals on Dec. 11, wrote of crytocurrency trading:

“Please also recognize that these markets span national borders and that significant trading may occur on systems and platforms outside the United States. Your invested funds may quickly travel overseas without your knowledge. As a result, risks can be amplified, including the risk that market regulators, such as the SEC, may not be able to effectively pursue bad actors or recover funds.”

Tyler Moore, the University of Tulsa researcher, says there is guidance to be found in the Mt. Gox story.

“The lesson for the broader ecosystem is that we need increased cooperation between financial regulators and trading platforms to share information about the trading behavior of individual actors with outsize positions,” Moore wrote in an e-mail to Xconomy.

“Greater assurances are needed that the trades taking place are in fact legitimate and reflect buying and selling by independent actors. Unless and until such oversight is implemented, we cannot trust the exchange rate to reflect only legitimate sources of supply and demand.”

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