Cryptocurrency investment

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Like all new technologies, today’s cryptocurrency is fraught with confusion and fear. That’s why I urge cryptocurrency enthusiasts to stick with the apps that the United States Securities and Exchange Commission has made a priority of scrutinizing.

The SEC has laid out the parameters of the cryptocurrency market in a series of recent public comments, where the agency outlines the obstacles it faces and gives advice on how to safely incorporate cryptocurrencies into a securities portfolio. The agency has signaled a priority in regulating the cryptocurrency market, and I applaud the regulators. But I also urge caution.

The U.S. Securities and Exchange Commission does not oversee cryptocurrencies. A new government agency, the Commodity Futures Trading Commission, will officially review cryptocurrencies and adopt rules to control the risks associated with their sale. It may be years before such an agency is up and running. In the meantime, the SEC is working with existing authorities to protect investor money.

As part of this effort, the SEC has been aggressively scrutinizing investment applications that tout claims of significant gains or to guarantee a minimum return of up to 5 percent a year. The SEC has cautioned that whether a company offers a promise of extra returns, or promises an extra profit, that does not mean securities are prohibited. Companies must specify in their applications whether the profits are guaranteed or if they claim to hold rights to the virtual currency.

An application that claims an investors can use cryptocurrencies will fail to meet the agency’s criteria for an initial public offering, the issuing of securities of a publicly traded company. The application must include a statement saying the company won’t trade its holdings in the virtual currency market and that the funds won’t be loaned out or invested in other securities.

Companies have been held accountable by the SEC for making material misrepresentations about their operations and their financial prospects to potential investors in the initial public offering. Violations in these cases can result in heavy penalties, like the recent public action in which the securities regulator penalized Elite Investment Systems, a firm that advertised itself as helping entrepreneurs “secure your first ICO.”

Elite had a well-known fortune-telling celebrity on its promotional video. It assured investors that this talent could make them rich. This came only weeks after another celebrity, rapper Ludacris, had millions of dollars worth of Ethereum stolen from an exchange. Investor confidence in Ethereum had already been hit by a rash of price plunges earlier this year.

The SEC’s recent public comments on cryptocurrencies make it clear that it intends to keep investigating allegations of fraud and manipulation. The agency has scheduled a series of public seminars starting next month that will provide insights into how to use cryptocurrencies to invest.

Last December, I urged the Securities and Exchange Commission to issue guidance explaining how to use cryptocurrencies in a securities portfolio. Today, I commend the agency for its efforts to raise awareness and understand how investors can safely incorporate cryptocurrencies into their portfolio.

As regulators focus on addressing shortcomings in current securities laws, the SEC has also provided financial analysis for how the use of cryptocurrency is set to grow over the coming years. A range of new cryptocurrencies are expected to launch soon. This indicates that new market entrants will have greater access to capital, fueling the growth of this emerging technology. This is a blessing and a curse.

On the plus side, today’s technology offers entrepreneurs more opportunities to invest in industries like biotechnology, manufacturing, telecommunications, and finance. But on the negative side, as more money is injected into the cryptocurrency market, it creates more incentives for scammers and hucksters to target inexperienced and risk-averse investors.

In our State Supreme Court vacancy, I am focused on how to grow Texas and Texas technology. Much of that effort will look to the future of technology and how we can make decisions based on sound science, and the fact that economic prosperity is directly related to the ability of any given company to raise capital. This approach encourages companies to identify areas where they have a competitive advantage and compete in industries that are developed and deployed to the benefit of Texas.

Whether investing in bonds, new forms of stocks or cryptocurrencies, I encourage people to stick with the companies that the SEC has made a priority of scrutinizing. After all, you don’t even have to talk to your broker to know that when these securities fall into the wrong hands, it will cost you dearly.
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