US regulators have warned against taking out reckless investments in cryptocurrency, which despite a meteoric rise in the past year remains unpredictable. The cautionary message came as it emerged that people were taking out mortgages to purchase bitcoin.
On Monday (11 December), the launch of much-anticipated bitcoin futures contracts boosted the value of a single bitcoin to more than $18,000 for a short period of time.
In January, that value was much lower – roughly $1,000.
The rise of the cryptocurrency sparked intense debate amid financial experts over whether it is a bubble.
The US Securities and Exchange Commission (SEC) is the latest body to wade into the conversation, urging all investors to be aware that some "tales of fortunes" may not always be what they seem.
SEC chairman Jay Clayton said: "As with any other type of potential investment, if a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost."
The chief wrote in a blog post Monday that cryptocurrency and Initial Coin Offering (ICO) markets remain unregulated and are at risk of fraud and market manipulation. "If you choose to invest in these products, please ask questions and demand clear answers," he stated.
The same day, Joseph Borg, president of the North American Securities Administrators Association, told CNBC that bitcoin was in a "mania" phase with people even lending money to get involved.
He said: "We've seen mortgages being taken out to buy bitcoin. People do credit cards, equity lines. This is not something a guy who's making $100,000 a year, who's got a mortgage and two kids in college ought to be invested in."
"You're on this mania curve," Borg continued, indicating that he believes the suspected bitcoin bubble will eventually burst.
"At some point in time there's got to be a levelling off," he added. "Cryptocurrency is here to stay. Blockchain is here to stay. Whether it is bitcoin or not, I don't know."
The blockchain is the technology that underpins bitcoin, a distributed ledger of transactions on which cryptocurrency is built.
Bitcoin, among its rivals, does not need a banking structure to operate. That reality has left some financial experts concerned.
His comments likely moved the market. In the cryprocurrency world, words have impact.
And for Clayton, ICOs – a way of raising capital for cryptocurrency ventures – are also of major concern. He wrote: "I caution market participants against promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions.
"Experience shows that excessive touting in thinly traded and volatile markets can be an indicator of 'scalping,' 'pump and dump' and other manipulations and frauds," he added.
At the time of writing, the price of a bitcoin was £12,720 ($16,969).