MADISON, Wis. – Consumers are being warned by the Wisconsin Department of Financial Institutions to be wary of the risks associated with interest-bearing cryptoasset and cryptocurrency accounts.
The DFI noted a growing number of companies offer so-called “deposit” account products that promise to pay high rates of interest on deposits of cryptocurrencies. Under the schemes, when an investor makes a deposit, they typically exchange their cryptocurrency for a promise by the issuing company or the borrower for a return of the same amount of cryptocurrency plus interest whenever the investor requests a withdrawal of the invested funds or at the end of a fixed term.
“Investors should be cautious and skeptical of investment offers that sound too good to be true or that offer guaranteed high returns with little risk,” said DFI Secretary Kathy Blumenfeld. “All investments carry the risk that some or all of the invested funds could be lost. High interest rates could often indicate high risks.”
The DFI noted cryptocurrency accounts may appear to be similar to savings accounts offered by banks and credit unions, except these interest-bearing accounts are generally much riskier.
The department noted that neither the FDIC, NCUA or any other government agency insure deposits in cryptocurrency interest-bearing accounts.
Senator Also Raises Issue
The issue of such fraud was also raised during a recent Senate Banking Committee meeting when one senator noted some companies have been attempting to pass themselves off as banks and other insured financial institutions.
“The companies that offer these products do not have access to the liquidity facilities that exist in the regulated banking system to protect depositors,” the DFI said. “The high rates offered by these companies have caused retail investors to consider investing in these accounts.”