The Cryptocurrency Market Needs Regulation to Protect Consumers
- Only around 1 in 10 Australians have bought a cryptocurrency in the past 12 months, but many have been scammed
- The crypto market recently crashed, wiping out billions of dollars in consumer money
- CHOICE calls for exchanges that sell or control crypto assets to be subject to the same consumer protection obligations as the traditional financial services industry
When Dallas Robson and her husband Jim saw a cryptocurrency investing ad on Facebook featuring Australian entrepreneur Dick Smith and other prominent Australians, it seemed pretty compelling.
The Gold Coast couple pride themselves on taking alternative approaches to things, including investing, and it seemed like cryptocurrency was the way of the future.
But now their financial future is in jeopardy. After clicking on the Facebook link, they received a call from someone claiming to be a retirement investment adviser, apparently from the UK.
Within about two months, the man convinced the couple to invest their entire retirement entitlement, $330,000, in his alleged cryptocurrency scheme. That money is now gone.
How Crypto Scammers Work
“He called the two of us every day for a month or more and gave us access to what was supposed to be a cryptocurrency website,” Dallas says.
“We started with a small amount of money, and all the time we were shown on this cryptocurrency web link that the money was increasing every day. We had never dealt with cryptocurrency, so we didn’t didn’t know what it was supposed to look like.”
We had never dealt with cryptocurrency, so we had no idea what it was supposed to look like
As the days passed and the amounts invested by the Robsons increased, their advisor added a personal touch.
“He sent pictures of his so-called grandson and his dog, and said he was divorced and had six properties in Noosa. [Queensland]”Dallas says.
The adviser explained that their investments would be protected by blockchain technology, the digital ledger that keeps track of cryptocurrency holdings.
“He was supposed to protect us from anyone coming to take that money,” Dallas says. “And we had heard about it.”
Scammers turn up the heat
But then the man who had been calling them every day for months claimed to have fallen ill with COVID-19, and a new man started calling.
“And all he kept saying was, send us more money, send us more money,” Dallas said. “My husband and I emailed him and said, ‘We’re out of money. You have everything.” And he said, “Oh, and the house?”
The scammers apparently worked as a team.
“We got a call from another man who supposedly belonged to a company that was collecting money from scammers,” Dallas says. “It was also a scam and we lost another $10,000 on our credit cards. A really big lesson in trust, unfortunately.”
The couple loses everything
The Robsons contacted the ACCC to try to recover their funds, but the agency said there was little they could do because the scam originated overseas.
According to our national survey, Australians who want to buy a cryptocurrency, but have not done so, are most concerned about losing their money. The second biggest concern is scams.
Dallas Robson isn’t particularly optimistic about getting her money back, but she wants to do what she can to prevent others from falling prey to a cryptocurrency scam.
“If we could prevent someone from getting into this situation, I would be absolutely thrilled,” she says. “I don’t want anyone else to feel what we feel.”
Jim and Dallas Robson lost their entire pension entitlement to a cryptocurrency scam.
Crypto Volatility Costs Investors
Just over one in 10 Australians have purchased a cryptocurrency like bitcoin or ethereum in the past 12 months, according to our survey. More than seven in 10 (71%) who said they were interested in the crypto market declined to make a purchase due to concerns about volatility, being scammed, or losing their money.
Scams aside, it’s not hard to see why. In mid-May, billions of dollars in cryptocurrency assets disappeared virtually overnight as the crypto market took a nosedive and lost about half of its value.
Bitcoin, arguably the best-known cryptocurrency, fell below $25,500 from a record high of $69,000 in November 2021, according to reports.
As it stands, enforceable protections in the unregulated cryptocurrency market fall somewhere between negligible and nonexistent.
This was just the latest wave of volatility. Dizzying highs and lows are a regular feature of the cryptocurrency market.
Our nationally representative CHOICE Consumer Pulse survey of 1,034 Australians in March and April also found that more than half of us are unsure whether cryptocurrency trading comes with consumer protections similar to those that apply to the stock market. About the same number of people think such protections should be in place.
As it stands, enforceable protections in the unregulated cryptocurrency market fall somewhere between negligible and non-existent. In a submission to the federal government, CHOICE calls for a regulatory regime to help end consumer harm.
Crypto plagued by scams
For the many Australians who have lost money to cryptocurrency scams, a few basic safeguards could have led to a better outcome.
Earlier this year, we reported that Australians lost $99 million to crypto investment scams in 2021 (the total loss for crypto scams in general was $129 million). It was the costliest scam in the country at the time, and probably still is.
In March, the ACCC initiated legal proceedings against Facebook (or Meta Platforms), alleging that it had engaged in false, misleading or misleading conduct by posting crypto investment scam advertisements. currency featuring Australian public figures including businessman Dick Smith, TV presenter David Koch and the former NSW. Prime Minister Mike Baird (neither of whom had anything to do with the announced investment plans).
It was the scam that attracted the Robsons.
“I did a lot of research and still got scammed”
We recently heard from a number of consumers who learned the hard way that the crypto market is fraught with risk.
“I did a lot of research and took every precaution, but I still got scammed and lost $30,000,” Steven* tells us.
“I was scammed and lost $50,000,” says Wilson*.
“My bitcoins are still there”
But even when you’re not caught in a scam, the crypto market can all too easily run away with your money.
“Bitcoins rose in value for a short time after I bought a small amount, but then quickly fell back to less than the purchase price,” another crypto customer tells us.
“I decided to leave my small amount in place as I thought it would increase again. What I didn’t know and couldn’t know is that the company that held my bitcoins was in trouble and was taken over by another company. When I approached the new company, I received no response. I have never made any money with my bitcoins, which I believe are still there somewhere, if only I could find them.
Aggressive sales tactics
Aside from the Robsons, we’ve heard from others who report being subjected to hard-selling tactics.
“The salesman kept pushing me to fill up,” says Sherry*. “I tried to sell but was told otherwise. Eventually I got fed up and cut off contact with these wolves. I’d rather lose the money I’ve already invested than lose ‘to be disturbed every day.’
*Not their real names.
What we claim
In light of the data, which shows the growing interest in crypto trading, the rise of aggressive marketing, and the huge growth in scams, CHOICE urgently calls for better regulation.
“The crypto market is booming, but our laws are lagging behind,” says Patrick Veyret, senior policy adviser at CHOICE. “More and more Australians are buying crypto assets such as bitcoin and etherum without adequate consumer protections.”
CHOICE is hearing from many Australians about financial loss and other damage caused by buying crypto assets that weren’t what they seemed.
The crypto market is booming, but our laws are lagging behind. More Australians are buying crypto assets such as bitcoin and etherum without adequate consumer protections
CHOICE senior policy advisor Patrick Veyret
“There have been a number of recent exchange crashes where people have lost all of their life savings without being able to get their money back,” says Veyret. “The recent collapse of the so-called “stablecoin” terraUSD (recently relaunched as luna) is a clear example of the extreme volatility of this unregulated market.
“CHOICE has also seen a huge increase in scams on crypto exchanges. Our research shows that two out of five people who are interested in crypto are not investing due to the risk of scams.”
Our Submission to the Federal Treasury
In our submission to the Federal Treasury, we ask:
- a single definition of crypto assets for regulatory purposes
- a licensing regime for all exchanges that sell or control crypto assets under the Australian Financial Services Licensing Regime
- crypto exchanges will be bound by consumer protection provisions, including the prohibition of misleading and misleading behavior, impermissible behavior and unfair contract terms
- crypto exchanges to have measures in place to prevent fraudulent payments and reimburse consumers when they occur.
“The new federal government must rein in the unregulated crypto industry as one of its financial services reform priorities,” Veyret says.
“Australians expect the same level of consumer protection and regulatory oversight for crypto assets as they do with other financial products.”