Consumer protection agencies around the world have witnessed a big jump in cryptocurrency-related complaints after the price of bitcoin hit all-time-highs towards the end of last year, and then lost over 60 percent of its value early in 2018.
Due to the unregulated nature of bitcoin and most companies operating in the crypto space, there is little legal recourse available for consumers who fall victim to scams or suffer a loss of funds due to operational issues or account closures on trading platforms. That does not mean, however, that consumers have not tried. Consumer protection agencies around the world have witnessed a big jump in cryptocurrency-related complaints since the price of bitcoin hit all-time-highs towards the end of last year.
Bitcoin complaints have skyrocketed in the U.S.
According to a report by consumer research company ValuePenguin, consumer complaints received by the U.S. Consumer Financial Protection Bureau (CFPB) over issues with leading digital currency exchange Coinbase increased substantially as the price of bitcoin moved from around $20,000 in December 2017 to less than half that value in February.
The study analyzed complains from June 1, 2017, to March 1, 2018, and found that consumer complaints about Coinbase’s services surged the most when bitcoin’s price drop was the steepest. At this critical time, the complaints show that Coinbase customers struggled to transfer and trade their digital currency with long transaction delays. Coinbase customer support was also overwhelmed and missing in action for many clients.
In the chart below, you can see the number of weekly Coinbase complaints versus the price development of bitcoin in the past nine months.
The chart clearly shows that the amount of Coinbase complaints spiked when the price of bitcoin started to drop substantially in January and early February 2018. While some might suggest that consumers were merely complaining because they lost money due to the price of bitcoin dropping, the reality is that Coinbase gained a substantial inflow of new users during the final months of 2017. This appears to have caused a number of operational issues which are reflected in the break down of the top five most common complaints made against Coinbase shown in the following chart.
As the chart shows, the failure to deliver funds on time, other transaction and service issues, as well as problems with the application made up 76.3 percent of all complaints received by the CFPB, which suggests that Coinbase struggled to manage this many new users and huge trading volumes triggered by the bitcoin price rollercoaster.
Changes in credit card processing also spiked complaints about Coinbase in late January and early February due to changes in Merchant Category Codes. The changes saw many customers charged incorrectly — as evidenced by this announcement on Coinbase’s twitter feed at the time.
Australia’s consumer protection agency records over 1,200 crypto complaints
In Australia, the Australian Competition & Consumer Commission (ACCC) is tasked with regulating fair trading and enforcing consumer laws. Its ‘Scamwatch’ team reportedly received 1,289 complaints related to bitcoin last year, with financial losses estimated at over $AUD 1.2 million. Many Australians have fallen victim to bitcoin scams or have lost money on bitcoin exchanges such as Igot (which has now rebranded to Bitlio).
Investor Akram Bekzada, for example, invested money to purchase bitcoin on Igot but was unable to withdraw funds from the exchange. He laid complaints with the ACCC and the Australian Securities and Investment Commission (ASIC) but says he was told they were powerless to act. “One of the main selling points of Igot was that they’re an Australian entity, he says. “This is how they advertised, this is how they got a lot of people’s trust. Many of the customers are dumbfounded as to why nothing has been done. Everyone expected so much more of Australian authorities."
How can you make a complaint to about cryptocurrencies?
In the U.S., consumers can send their complaints to the Consumer Financial Protection Bureau (CFPB). The CFPB is the government agency tasked with consumer protection in the financial sector. If you have lost access to your funds on a U.S.-based exchange or feel that a bitcoin company’s lack of service has led to a loss of funds or potential trading revenue, you can reach out to CFSB who will investigate the matter on your behalf.
Having said that, like with all government bodies, this can be a lengthy process and may not result in the desired outcome. If you have lost a substantial amount of funds deposited with a U.S.-based cryptocurrency company, you will probably be better off taking legal action directly. To an extent, the lack of regulatory certainty around the legal ‘status’ of cryptocurrencies internationally is also affecting complaint outcomes.
In the U.K., for example, the Financial Services Compensation Scheme (FSCS) protects consumers against losses of up to £50,000 in the event that an ‘authorized’ financial company going into liquidation. But as crypto financial companies cannot become authorized then investors who lose their digital currency holdings are not entitled to be reimbursed. Furthermore, the Financial Ombudsman Service, the country’s consumer protection agency covering financial products, can also not be of service due to the lack of regulation in the cryptocurrency space.
Therefore, until there are clear regulations in place that govern consumer rights in relation to cryptocurrencies, little can be done by the traditional authorities for people who have lost funds due to cryptocurrency-related investments or operational issues at crypto financial organisations.