Cryptocurrencies

Cryptocurrencies are a type of asset that exists in digital form and can be managed, stored or transferred typically using a distributed ledger (such as a blockchain). Encryption technology is used to control the amount of currency issued and to record ownership and payments.

Crypto is decentralised by nature, which means there’s no control by a single entity such as a government, bank or financial institution - there are no restrictions on who can issue them. For some, cryptocurrencies are attractive because they give access to financial services without the need to rely on traditional financial institutions such as banks.

Crypto also offers the possibility of faster transactions and lower fees compared to conventional financial transactions.

Many are attracted to crypto investing by the possibility of high returns as they increase in value. Early adopters of cryptocurrencies like Bitcoin have witnessed substantial gains, drawing more investors to explore such digital assets.

While using crypto to pay for everyday goods and services is still limited, cryptocurrencies are gaining acceptance as investments and payment options by financial institutions and businesses.

But the decentralised and highly volatile nature of crypto means they are high risk, unpredictable and speculative, so it is important to understand what you are investing in and the risks. 

Many overseas crypto exchanges are unregulated and operate exclusively online – there’s no connection to New Zealand.  This makes it hard to find out exactly who is offering, exchanging, buying or selling crypto. This can also make it difficult for you to contact the exchange or make a complaint and it is unlikely you will get your money back if things go wrong.  

As a starting point, we suggest checking whether the entity is registered on the Financial Service Providers Register (FSPR). Many entities registered on the FSPR are also required to be a member of an independent dispute resolution scheme and may be required to comply with our anti-money laundering and counter terrorism financing law.  

It’s volatile  

Crypto values can change quickly due to market events, media attention, public opinion or promotions by individuals on social media. There are lots of different cryptocurrencies available. If one becomes popular, its value may increase quickly, but it can also suddenly drop - sometimes permanently.   

Pump and dump  

Be careful of “pump and dump schemes” where people heavily promote a specific cryptocurrency, often through spreading false or misleading information. The aim is to get lots of people to buy in, pumping up its price. Once it has reached a higher price, those responsible for the pump and dump scheme will sell their assets in high volumes causing the price to drop. Other investors may be left holding cryptocurrencies that are worth much less. They can lose most or all of the money they have invested. 

CFD risks  

If you invest in the futures market through contracts for differences (CFDs) where you make - or lose - money by predicting how the price of cryptocurrencies might change, there is a higher risk of losing your investment. CFDs are typically offered with “leverage”. This means you only pay a portion of the value of your trade upfront but if you lose, your losses will be magnified. You may be required to pay back more than you initially invested. This means even small movements in currency values can have a big impact on any gains or losses.  

Providers offering crypto CFDs in New Zealand require a derivatives issuer licence from the FMA. If you are interested in investing in crypto CFDs or other type of crypto derivatives, make sure that the service provider is licensed by the FMA to offer this product in New Zealand.   

Your ‘coins’ may be stolen  

All online transactions are at risk of cyber-crime. The cryptocurrency in your digital wallet can be stolen just like the money in your real wallet – with little chance of it being returned. Crypto marketplaces and trading platforms are also at risk of cyber-attacks.  

Do not give other people access to investment information, or access to your digital wallet or encryption keys.  

Cryptocurrencies aren’t widely accepted  

Cryptocurrencies currently have less practical value than money which can be used for everyday transactions.

Crypto scams are widespread  

Scammers like to use crypto because the transactions move quickly and are irreversible, making them harder to trace by victims and law enforcement. The decentralised nature of crypto makes it easier for scammers to hide their identities and activities. Scammers rely on many people not understanding how crypto and crypto transactions work and often promote crypto investments as an easy, low risk way to get rich quickly.   

Be cautious of anyone offering you investment opportunities that promise high returns with little or no risk, especially if they pressure you to act quickly.   

Many scams look like “get-rich-quick" schemes and may use attractive ads or fake endorsements from celebrities to encourage people to give or invest their money. Always do your research before you invest and, to reduce potential risks, only engage with service providers registered on the FSPR to provide services to New Zealanders.