BCSC warns investors about cryptocurrency 'smart wallets'

In this Dec. 8, 2017, file photo, coins are displayed next to a Bitcoin ATM in Hong Kong. (AP Photo/Kin Cheung, File)

VANCOUVER - The British Columbia Securities Commission is warning investors about cryptocurrency "smart wallet" applications that purport to use automated trading to improve returns.

The commission issued an "investor alert" Wednesday that mentioned two specific apps it says make claims that are "too good to be true."

One app, WoToken Wallet, claims users will earn six to 20 per cent per month by activating the automated trading software, the BCSC said. Another, Cloud Wallet, claims users will earn six to 15 per cent in the same way.

The apps claim to use artificial intelligence software to find and execute high-frequency cryptocurrency trades, which are not controlled by the investors, BCSC said.

Users are also told they will receive bonus payments for recruiting other people to use the apps, with those bonuses depending on how much the recruits earn from their own use of the apps.

“These apps’ claims of big payouts from some kind of automated crypto-asset trading appear too good to be true,” said Doug Muir, the BCSC’s director of enforcement, in the commission's alert notice.

“The apps also resemble a pyramid scheme, in which investors are promised earnings if they get others to join in," Muir said. "Big promises and pyramid-like payouts are both classic warning signs of risky investments. We urge everyone to approach these apps with extreme caution.”

Users of the apps are required to make minimum deposits of US$100 to US$1,000 in cryptocurrency. Bonuses are paid out in cryptocurrencies that are specific to the app being used, which can then supposedly be converted into more commonly traded cryptocurrencies such as bitcoin or ether.

In addition to warning investors about apps of this type, BCSC said it urges caution when buying cryptocurrencies through trading platforms in general. No cryptocurrency trading platform is recognized as an exchange, marketplace or dealer in Canada, which means securities regulators like BCSC don't have legal authority over them.