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South African watchdog warns against growing digital currency scams

South Africa’s financial services watchdog is warning the public against the rising number of cryptocurrency scams in the country. The warning comes after over 260,000 investors lost close to a billion dollars in a local BTC Ponzi scheme.

In its warning, the Financial Sector Conduct Authority said it’s receiving a large number of complaints from South African investors who have lost their savings through digital currency scams. The watchdog reminded investors that digital currency investments “are not regulated by the FSCA or any other body in South Africa.”

“As a result, if something goes wrong, you’re unlikely to get your money back and will have no recourse against anyone,” it added.

It outlined the major risks that investors must be aware of if they are to invest in digital currencies. They include investment firms “overstating the potential pay-outs or understating the risks.” Investing in digital currencies is very risky and as such, investors must be prepared to lose all their money.

There’s no guarantee that digital currencies could be converted back to fiat currencies, the FSCA continued. This puts investors at the mercy of market forces, including demand and supply.

There’s no underlying basis for value determination of digital currencies, the regulator stated. Rather, their prices are dictated by “the underlying mood or sentiment of the general public.” It alluded to market manipulation, claiming that digital currency prices are driven by people who have an interest in the value of the currency. This manipulation is applied by Ponzi scheme operators who pump up prices of their tokens to lure investors who are afraid of missing out. Once they bring in the investors, they dump the tokens at a fraction of their original price.

As a hedge against losses, investors should ensure digital currencies only make up a small proportion of their investment portfolio. They must also seek advice on the sustainability of their investments before putting their money in a digital currency. There are no safe “get-rich-quick-schemes,” the regulator reminded investors.

“The high risks already inherent in crypto assets are further being compounded by scam activity, as well as unregulated firms targeting consumers with marketing material that highlights the rewards, but not the potential downside, of investing in crypto assets.”

South Africa has already seen a number of digital currency scams, leading to billions of dollars in losses. The largest is Mirror Trading International, a scam that posed as a BTC trading club. MTI reportedly scammed over 260,000 investors, with regulators estimating total losses to be over $880 million.


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