BRITS have been warned that they risk losing ALL of their money if they invest in bitcoin and other cryptocurrencies.
The financial watchdog flagged the risks after the price of bitcoin rocketed to record levels in recent weeks.Bitcoin has boomed as investors look to make money[/caption]
The Financial Conduct Authority (FCA) said people need to be aware of the risks, ranging from prices going up and down suddenly, to the lack of protection if something goes wrong.
Bitcoin, the most well known cryptocurrency, soared to new highs over the festive period.
The price of bitcoin doubled in less than a month, reaching $40,000 (£29,650) but has since tumbled and is currently worth $35,522 (£26,316).
Investors have flocked to buy bitcoin and other cryptocurrencies in the search for better returns at a time of record low savings rates.
Investments in cryptocurrencies like bitcoin, as well as financial products related to them, often promise high returns but “generally involves taking very high risks with investors’ money” the FCA said.
“If consumers invest in these types of product, they should be prepared to lose all their money,” the financial regulator said.
5 risks of crypto investments
THE Financial Conduct Authority (FCA) which creates the rules for the banking industry has warned people about the risks of investing in cryptocurrencies.
- Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements.
- Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
- Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market.
- Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.
- Marketing materials: Firms may overstate the returns of products or understate the risks involved.
The warning comes as a ban on some crypto-related investment products comes into force.
Firms offering other cryptoassets must now be registered with the FCA as part of the regulator’s efforts to tackle money laundering.
Anyone who does invest in cryptocurrencies should check the firm they are using is registered with the FCA.
Despite the increase in regulation, some crypto related investments are not protected in the same ways as others.
Consumers are unlikely to be protected by the Financial Services Compensation Scheme (FSCS), which covers up to £85,000 of your savings if a firm goes bust.
You’re unlikely to take your complaint to the Financial Ombudsman Service (FOS) either, which typically only covers traditional savings and investments if something goes wrong.
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The FCA also said investors should be aware of the complexity of financial products linked to cryptocurrencies, including that there is no guarantee that their money can be converted back into cash.
The watchdog said: “Consumers should be aware of the risks and fully consider whether investing in high-return investments based on cryptoassets is appropriate for them.
“They should check and carefully consider the cryptoasset business involved.”