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Wall Street News

E*Trade Entering Crypto Trading, While FINRA Urges Caution

April 29, 2019

by Howard Haykin



As news services circulate reports that E*Trade Financial is about to let customers trade cryptocurrencies on its platform – starting with Bitcoin and Ethereum and then adding other cryptocurrencies in the future – FINRA is urging investors to use caution when it comes to selecting cryptocurrency trading platforms. [Though not with regard to E*Trade’s entry into this sector.] 



According to The Alert Investor, a FINRA bulletin with assistance from the BBB Institute [for Marketplace Trust(?)], service providers have emerged to assist users in managing their cryptocurrencies. Notably, cryptocurrency online platforms have emerged, enablng users to buy, sell, exchange, and in some cases, store cryptocurrencies. While these platforms are colloquially referred to as "exchanges," they typically are not registered as such in the U.S. (in contrast to entities such as the NYSE that function as national securities exchanges) and may not be subject to any regulatory oversight.


In brief, here are some tips when using a cryptocurrency trading platform to obtain or transfer your cryptocurrencies:


1. THERE ARE DIFFERENT TYPES OF PLATFORMS.   Know what each platform offers, and what safeguards, if any, are in place to protect users. Can you trade and exchange "fiat" currencies such as U.S. Dollars or Euros for cryptocurrencies and vice-versa? Or, can you only engage in "cryptocurrency-to-cryptocurrency" exchanges?


2. THEFT HAPPENS.   Theft of cryptocurrencies by cyberattack is real. Other thefts are also possible, like theft or loss of keys that provide access to cryptocurrencies, effectively making it difficult if not impossible to recover them.


3. PLATFORMS AREN'T FDIC INSURED.   If a cryptocurrency trading platform is hacked or encounters some other technical challenge that causes the keys on the platform to be lost, you could lose all of your investment.


4. LOSSES ARE NOT SIPC-PROTECTED.   You're not protected against losses of crypto assets by SIPC, which protects customers of SIPC member brokerage-firms against loss of cash or securities in certain circumstances.


5. YOU WILL BE CHARGED FEES AND MAY NOT ALWAYS GET THE BEST PRICE FOR YOUR TRADE.   Crypto trading platform fees vary, sometimes significantly from one platform to another, while buy and sell prices can also vary significantly from one platform to another.


6. YOU MAY NOT GET IMMEDIATE ACCESS TO YOUR CRYPTOCURRENCY.   Since many of these platforms are relatively new, they may not be scaled to handle large volumes of customer requests – which can possibly delay investors' access to their holdings.


7. TEST THE PLATFORM.   As with any new technology, it might be a good idea to start small and do a little testing.


8. WATCH OUT FOR SCAMS.   Watch out for scammers and bad actors who seek to lure unsuspecting investors into storing their public and private keys with fake trading platforms. Alternatively, fraudsters may pose as fake tech support staff for legitimate platforms.