The United Kingdom’s Financial watchdog, The Financial Council Authority (FCA) has issued a stark warning to investors in so-called cryptoassets.
Many cryptoassets are not covered by investment regulation or protection, and for that reason, the FCA has advised investor to be “prepared to lose all their money” should their investment’s value collapse.
The warning is the latest in a string from the FCA and comes as Bitcoin, the best-known crypto currency, hit record highs, with very high level of swings.
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The FCA says it is concerned that while the highs are attractive, the inherent volatility of Bitcoin, and its rivals, mean there is a high risk of loses.
The FCA warns cryptoasset investors they will not have access to the Financial Services Compensation Scheme or the Financial Ombudsman Service as they would if they invested in standard products, such as shares.
It said in a statement: “Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money. If consumers invest in these types of product, they should be prepared to lose all their money.”
What are cryptoassets? (Extract from the Bank of England website)
There are thousands of different types of cryptoassets out there – or as you might know them, cryptocurrencies. You’ve probably heard of a few – Bitcoin, Ripple, Litecoin and Ethereum have all been mentioned in the news recently. But what exactly is it?
Well, let’s start by breaking down the word ‘cryptocurrency’. The first part of the word, ‘crypto’, means ‘hidden’ or ‘secret’ reflecting the secure technology used to record who owns what, and for making payments between users.
The second part of the word, ‘currency,’ tells us the reason cryptocurrencies were designed in the first place: a type of electronic cash.
But cryptocurrencies aren’t like the cash we carry. They exist electronically and use a peer-to-peer system. There is no central bank or government to manage the system or step in if something goes wrong.
Some people find this appealing because they think they have more control over their funds but in reality, there are significant risks. With no banks or central authority protecting you, if your funds are stolen, no one is responsible for helping you get your money back.
At the time of this publication, all but one of the 5 top cryptocurrencies by Market Cap. are down.
By; Nnamdi M.