Digital Assets Risk Acknowledgment
There are special characteristics and risks associated with trading Digital Assets. In transacting in such products, you acknowledge that you understand the risks of trading in Digital Assets, including those described herein, and agree to the terms and conditions provided in this Risk Acknowledgment. The following list of considerations and risks are not and do not purport to be a complete enumeration or explanation of the risks involved in trading in Digital Assets.
1. Risks Associated with Trading in Digital Assets
Trading in Digital Assets presents unique and potentially significant risks and is not appropriate for all investors. Buying, selling, and transacting in Digital Assets is highly speculative and may result in complete loss. As with any transaction, you should exercise caution before trading in Digital Assets. The following are just some of the risks involved in transacting in Digital Assets. You should take time to understand all of the risks of trading in Digital Assets for yourself before you trade.
- Volatility Risk. Digital Assets have only been in existence for a short period of time and historical trading prices for Digital Assets have been highly volatile. The price of Digital Assets could decline rapidly, and investors could lose their entire investment. Unlike other instruments, Digital Assets may not entitle the holder to any ownership stake or future cash flow. Accordingly, the value of a particular Digital Asset may be based solely on market supply and demand, as opposed to any underlying fundamentals. Additionally, the inability to trade Digital Assets on margin and/or the inability to short Digital Asset positions may negatively impact your ability to manage or mitigate trading losses.
- U.S. Federal and State Laws. The value of Digital Assets may be negatively impacted by future legal and regulatory developments, including but not limited to increased regulation of Digital Assets. Any such developments may make Digital Assets less valuable. Digital Assets are not considered legal tender and a federal, state, and/or foreign government may restrict the use and exchange of all or certain Digital Assets, which may affect the value of the restricted Digital Asset. Due to the new and evolving nature of Digital Assets and the absence of comprehensive guidance, many significant aspects of the tax treatment of Digital Assets are uncertain. Prospective investors should consult their own tax advisors concerning the tax consequences to them of the purchase, ownership and disposition of Digital Assets under U.S. federal income tax law, as well as the tax law of any relevant state, local, or other jurisdiction.
- Lack of Consumer or Asset Protections. While assets in securities accounts at U.S. brokerage firms are often insured by the Securities Investor Protection Corporation (SIPC), and assets in bank accounts at U.S. banks are often insured by the Federal Deposit Insurance Corporation (FDIC), Digital Assets, whether held in a third-party digital wallet service or exchange or otherwise, do not have similar protections, and the insolvency or dissolution of a third-party digital wallet service or exchange due to fraud, technical glitches, hackers, malware, or other reasons may affect the value of Digital Assets.
- Risk of Fraud or Theft. Despite any safeguards against loss, theft, destruction, and inaccessibility that a Digital Asset exchange or service provider may have in place, there is nonetheless a risk that some or all of a Digital Asset could be permanently lost, stolen, destroyed, or inaccessible by virtue of, among other things, the loss or theft of the “private keys” necessary to access a Digital Asset. Platforms that buy, sell, and custody Digital Assets can be hacked, and some have failed. In addition, like the platforms themselves, digital wallets can be hacked and are subject to theft and fraud. As a result, you can lose some or all of your holdings of Digital Assets. Investing in Digital Assets also carries a heightened risk of fraud, as innovations and new technologies like Digital Assets are often used to perpetuate fraudulent schemes. Transactions in Digital Assets on a blockchain may be irreversible, and thus, corresponding losses may not be recoverable. Investors should be aware of the potentially increased risks of transacting in Digital Assets including fraud, theft, and lack of legitimacy, and other aspects and qualities of Digital Assets, before transacting in such assets.
- Risk of Illicit Activity. Digital Assets have known use in illegal activity, including drug dealing, money laundering, human trafficking, sanctions evasion, ransomware payments, and other forms of illegal commerce. The use of Digital Assets in illicit activity could impact legitimate investors. For instance, law enforcement agencies may freeze, seize, or otherwise restrict access to Digital Assets if illicit activity is suspected, which may result in total loss or the inability to use or trade Digital Assets. Involvement, knowing or unknowing, in illicit activity can expose you to regulatory investigations, account restrictions, and potential civil or criminal liability. Future developments, including new laws, regulations, rules, or enforcement priorities, may increase the risks of holding and transacting in Digital Assets.
- Limited Operating and Performance History. Digital Asset exchanges have limited operating and performance histories and are not regulated with the same controls or customer protections available to more traditional exchanges transacting equity, debt, and other assets and securities, which increases the chance of market manipulation. Additionally, there can be no guarantee of the continued availability of Digital Asset quotations or trading on an exchange. Digital Assets may not have an established track record of credibility and trust. Further, any performance data relating to Digital Assets may not be verifiable as pricing models are not uniform. Over the past several years, certain Digital Asset exchanges have experienced failures or interruptions in service due to fraud, security breaches, operational problems, or business failure. Such events in the future could impact your ability to transact in Digital Assets and may also materially decrease the price of Digital Assets, thereby impacting the value of your investment.
- Other Unknown Risks. You understand that Morgan Stanley Smith Barney LLC (the “Company”) cannot predict or describe all of the special trading risks that could arise while transacting in Digital Assets. Accordingly, you agree NOT to hold the Company, its affiliates, or their officers, directors, or employees responsible for any risks you undertake by transacting in such products, regardless of whether such risks are described herein.
2. Account Holder / Authorized Agent Acknowledgment
By choosing to transact in Digital Assets, you understand and acknowledge that:
i. The Company does not transact in or custody Digital Assets, and all Digital Asset transactions and custody occurs through a third party.
ii. You understand the risks associated with transacting in Digital Assets, including complete loss, are acting as a self-directed investor, and, accordingly, are capable of making your own investment decisions.
iii. Although the Company identifies these investments on its web and mobile platforms and provides certain education about them, it does not provide any investment advice nor make any recommendations or solicitations regarding Digital Assets. As such, you have not relied, nor will you rely, on the Company or its representatives for any information or guidance in determining the appropriateness of the product for you and your account.
iv. This acknowledgment applies to all past, present, and future Digital Asset transactions you choose or have chosen to enter for all accounts that you either beneficially own or over which you exercise or have the right to exercise trading authority. Failure to provide this acknowledgment may result in your being prohibited from transacting in Digital Assets in the future.