Bitcoin has dramatically increased in price over the past year, but that doesn’t mean it’s going to keep rising. Jay Clayton, chairman of the United States Securities and Exchange Commission, has warned about people getting caught up in the hype and pinning too much hope on cryptocurrency, as well as “initial coin offerings” where investors buy tokens ahead of a new currency’s launch.

“The world’s social media platforms and financial markets are abuzz about cryptocurrencies and initial coin offerings,” Clayton said in a Monday public statement. “There are tales of fortunes made and dreamed to be made. We are hearing the familiar refrain, “this time is different.””

The warning comes at a big time for Bitcoin, by far the world’s largest cryptocurrency. Bitcoin surged past its all-time high of $13,000 last week, only to push further to $14,000 hours later and set new records. The Chicago Board Options Exchange launched their futures contracts this week, and within hours speculation on the price in January shot from $15,000 to $17,450.

It seems like an ideal moment to get into cryptocurrencies, but Clayton warns about jumping headfirst into an investment that is not backed by regulation. No ICO to date has been registered with the SEC, and anyone claiming that theirs has been is lying. Cryptocurrencies may offer big rewards, but there’s a number of questions Clayton recommends that investors ask before they put their money into it.

Jay Clayton.
Jay Clayton.

The key questions investors should be asking is “who am I contracting with,” “where is my money going,” “is the blockchain open and public,” “what happens if I lose the key to my digital wallet,” and “do I have legal protection?”

Despite the questions around the regulation of such offerings, Clayton is positive about the potential benefits that cryptocurrency’s underlying technologies could bring.

“The technology on which cryptocurrencies and ICOs are based may prove to be disruptive, transformative and efficiency enhancing,” Clayton said. I am confident that developments in fintech will help facilitate capital formation and provide promising investment opportunities for institutional and Main Street investors alike. I encourage Main Street investors to be open to these opportunities, but to ask good questions, demand clear answers and apply good common sense when doing so.”