Bitcoin: Cryptocurrency investors should be ‘prepared to lose all their money’, warns watchdog

Prices of digital currencies have soared in recent weeks as speculators chase high returns, but regulator says consumers face significant risks

Savers ploughing their money into bitcoin and other cryptocurrencies should be prepared to lose all of their investment, the City watchdog has warned.

Bitcoin’s value has surged in recent weeks, almost tripling from $11,381 in mid-October to $32,930 on Monday, encouraging many speculators to jump in, hoping for big returns.

However, the price has fluctuated wildly, dropping 16 per cent between Sunday and Monday.

A number of institutional investors have also got in on the act as yields on some traditional, safer investments remain low.

The Financial Conduct Authority (FCA) told ordinary savers to be extremely wary of putting their cash into the cryptocurrency boom.

“The FCA is aware that some firms are offering investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns,” the regulator said in a statement on Monday.  

“Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money.”

It added: “If consumers invest in these types of product, they should be prepared to lose all their money.”

The regulator warned that some investments advertising high returns based on cryptoassets may not be subject to regulation beyond basic anti-money laundering requirements.

It said significant price volatility, combined with the “inherent difficulties of valuing cryptoassets reliably” places consumers at high risk of losses.

Companies pushing cryptocurrency-based investment products may also overstate the potential returns and it may not always be possible to convert cryptoassets back into ordinary currency, the FCA warned.

What to do

FCA recommends caution before putting any money into cryptocurrencies

Step 1: Consumers should check if the firm they’re using is on the Financial Services Register or list of firms with Temporary Registration (note: appearing on the Temporary Registration Register does not mean that the FCA has assessed them as fit and proper, nor that the FCA has determined their application for the purposes of the Money Laundering Regulations).

 

Step 2: If they’re not, consumers should ask the firm whether they are entitled to carry on business without being registered with the FCA.  

 

Step 3: If they’re not, the FCA suggests that consumers should withdraw their cryptoassets and/or money. This is because the firm is operating illegally if it has not ceased trading by 9 January 2021.

 

Visit the FCA’s Cryptoassets pages for more information.

Several sites offering investments in cryptocurrency have disappeared with people’s money since bitcoin was invented in 2009.

Some analysts have touted crytpocurrencies as a hedge against inflation or even as a safe haven during turbulent economic times, akin to “digital gold”.

But the value of the digital coin has frequently fallen as rapidly as it has risen, meaning large gains by some have come alongside significant losses for others.

The total value of all bitcoin in circulation was $619bn on Monday, according to CoinMarketCap.com.