Overview

Cryptocurrencies have attracted enormous attention over the past months and generated much excitement including from investors with limited knowledge of financial products. Cryptocurrencies are digital currencies that are issued by private entities or individuals and use sophisticated digital files as representation of value. They do not physically exist and do not have legal tender status.  The Central Bank of Eswatini (CBE), advises consumers to act with extreme caution and to be mindful of the potential risks should they invest in, trade, and hold cryptocurrencies such as Bitcoin. The CBE is concerned that the recent price escalations may attract members of the public to invest in cryptocurrencies without understanding the potential risks. 

The CBE has been following developments in the cryptocurrency space in line with its commitment to create an enabling environment for innovative financial products. The Bank has observed that cryptocurrencies such as Bitcoin remain volatile. The value of cryptocurrencies is generally not linked to any conventional store of value such as fiat currency, which leads to significant price speculation. Over the past months, cryptocurrencies have gained increased interest from the public, celebrities, investors, and businesses causing prices to surge, displaying wide price fluctuations in response to any sentiments expressed by those considered to be influencers in the field. This volatility means that consumers ought to be aware that investing in or trading cryptocurrencies is risky and that those who choose to invest in this type of products should carefully consider the fact that while they stand to make huge gains, the potential to lose a lot of money is also present. 

The Bank understands that there are some websites, mobile apps, firms, and individuals offering investments in cryptocurrencies or in products linked to cryptocurrencies, that promise high returns. As with all investments, the Bank encourages consumers to make sure they understand what they are investing in, and the risks associated with the investments. 

The Risks

The CBE cautions the public of the following concerns and risks about investments linked to cryptocurrencies: 

• Price Volatility: Cryptocurrencies continue to exhibit high volatility, therefore exposing investors to large losses. Cryptocurrencies are also speculative and difficult to evaluate. Prices can fluctuate resulting to high losses.
• Price transparency and fees: Besides high volatility, there can be significant variation in the price of cryptocurrencies across different trading platforms. There is a risk that you may not receive a fair and accurate price for the cryptocurrency when trading. Fees and charges may also be more than those for regulated products. 
• Fake Investments: As cryptocurrencies continue gaining popularity and consumers suffer from the fear of missing out, many people have taken advantage of the technology sophistication to perpetrate investment scams. This includes fake cryptocurrency exchanges, fake cryptocurrencies, pyramid schemes and malware downloaded through imposter websites.  
• Foreign and online operators: Cryptocurrency exchanges operate online or outside of Eswatini, making it difficult to trace and verify the authenticity of the operation. If the investment fails, you could lose all your money with no compensation. 
• Exchange and Wallet Hacks: Cryptocurrency exchanges have become a target of large-value hacks and data breaches, resulting to loss of funds. Earlier this year, founders of the South African crypto exchange, Africrypt halted operations and disappeared after claiming that the exchange had been hacked losing about $3.6 billion investor funds.
• Unregulated product: Cryptocurrencies are currently unregulated in Eswatini, meaning consumers buying or trading cryptocurrencies do not benefit from consumer protection and safeguards associated with regulated financial services. For example, the South African Financial Services Conduct Authority (FSCA) could not take any regulatory action against Africrypt as cryptocurrencies are not yet regulated in South Africa.

Investment Scam Warning Signs

• High, frequent, and guaranteed returns: If it seems too good to be true, it is most likely a scam. Always remember that investments come with a set of risks and there are no guaranteed returns. Between 2018 and 2019, Kenyans lost millions of shillings to a pyramid scheme, Velox 10, that claimed to trade in bitcoin and charged a membership fee of about $100 (E1,600) promising members that they could earn up to $4,000 (over E60,000) daily if they paid an additional fee of $200. The company disappeared without paying its members.
• Random Contact: Be wary of individuals and companies that contact you out of the blue to offer you investment opportunities. This could be through social media, cold calls, text messages, email or even brochures.
• Recruiting:  Investment scams may also focus on recruiting through a known contact, such as a friend or colleague, who may claim to have invested in the cryptocurrency product and made good returns.
• Pressure to invest:  Most investment scams pressure you to make a rush decision, by selling you a limited time offer, discounts, or bonus if you sign up before a deadline.
• They are not licensed by the Financial Services Regulatory Authority and the Central Bank of Eswatini.
• Complicated products: Opportunities to invest in emerging technologies may seem exciting. However, scammers often use the technology complexity of cryptocurrencies to make investors feel like they are part of something big. Be suspicious if the advisor or recruiter cannot explain the product or business strategy in simple terms. 
• Issues with receiving payments: Be skeptical if you experience delays or having trouble cashing out your investment funds. A balance showing up next to your name on the investment website or receiving a screenshot showing that they have made a payment to your account is no guarantee you will receive your funds. Some fraudsters convince the victims to reinvest their payments with a promise of even higher investment returns or pay additional money to cash out your investment. 
• Fake Mobile Apps: Some scammers trick cryptocurrency investors through fake apps available for download through Google Play Store and Apple App Store. Every investor should be aware of a possibility of misspellings in the name of the app, strange coloring, and incorrect logo.

The Central Bank further reminds the public that:

• Cryptocurrencies are not legal tender in Eswatini; and
• Cryptocurrencies are currently unregulated in Eswatini; therefore, investors do not benefit from the legal protection associated with regulated instruments.

What to do?

• Always conduct your due diligence before investing in any product and make sure you understand your risk exposure. ASK as many questions as you need to understand the product. Be wary of companies and individuals that avoid answering any of your questions or resorts to using big or technical words that are difficult to understand.
• Always CONFIRM with the Central Bank of Eswatini and the Financial Services Regulatory Authority if the firm is registered and allowed to provide the financial services in Eswatini:
  • Central Bank of Eswatini (CBE): info@centralbank.org.sz  / +268 2408 2000
  • Financial Services Regulatory Authority (FSRA): info@fsra.org.sz / +268 2406 8000
• Refer to the Eswatini Finance website (http://eswatinifinance.org/)  for resources and information on financial literacy.

Key takeaways

• At present, cryptocurrencies are not regulated by either the Central Bank of Eswatini nor the Financial Services Regulatory Authority.
• Be aware of the risks of holding, investing, and trading cryptocurrencies.
• Cryptocurrency scams include fake initial coin offerings (ICOs), fake investments, social media scams and social engineering scams.
• Only invest with licensed entities.