Due to the potential for losses, the Financial Conduct Authority (“FCA”) considers cryptoassets to be high risk.
What are the key risks?
You could lose all the money you invest.
- The performance of most crypto-assets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in crypto-assets.
- The cryptoasset market is largely unregulated. There is a risk of losing money or any crypto assets you purchase due to risks such as cyber-attacks, financial crime and firm failure.
- Staking cryptoassets involves a risk of slashing. A potential penalty (loss of assets) due to validator non-compliance.
You should not expect to be protected if something goes wrong.
- The Financial Services Compensation Scheme (“FSCS”) doesn’t protect this type of investment because it’s not a ‘specified investment’ under the UK regulatory regime – in other words, this type of investment isn’t recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker here.
- Protection from the Financial Ombudsman Service (“FOS”) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
You may not be able to sell your investment when you want to.
- There is no guarantee that investments in crypto assets can be easily sold at any given time. The ability to sell a crypto-asset depends on various factors, including the supply and demand in the market at that time.
- Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your crypto assets when you want.
- Staking of some cryptoassets may involve a lock-up period, meaning you will have to wait before you are able to sell tokens.
Cryptoasset investments can be complex.
- Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.
- You should do your own research before investing. If something sounds too good to be true, it probably is.
Don’t put all your eggs in one basket.
- Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.
- A good rule of thumb is not to invest more than 10% of your money in high-risk investments.
If you are interested in learning more about how to protect yourself, visit the FCA’s website here. For further information about cryptoassets, visit the FCA’s website here.