Britain’s financial watchdog issued a dire warning to cryptocurrency traders on Monday, when Bitcoin took investors on another wild trip.
The UK Financial Conduct Authority said that consumers who invest in the cryptocurrency market “must be prepared to lose all their money” because there are many risks involved.
Companies that promote crypto investments may exaggerate the returns that traders will reap and underestimate market risks, and investors who buy are unlikely to have access to consumer protection if something goes wrong, regulators said.
“Consumers should be aware of the risks and fully consider whether investing in high-return investments based on cryptoassets is appropriate for them,” said the agency, known as FCA, in the warning. “They must carefully verify and consider the encryption business involved.”
The authorities also noted that there is no guarantee that digital currencies can be converted back into cash and that their prices will fluctuate wildly.
Monday offered yet another example of this volatility, as the price of Bitcoin – the world’s largest cryptocurrency – plummeted after a record rally last week.
Bitcoin was trading at $ 33,554.28 as of 9:51 am, a drop of almost 15% from the previous day and about 20% from the historic $ 41,962.36 high it reached on Friday, according to CoinDesk data.
Other popular currencies have also suffered huge losses – Ethereum, the second largest cryptocurrency in market value, recently fell by about 20%, to $ 1,031.48, while the XRP fell by about 15% to about 28 cents.
Institutional investors have helped to raise the price of Bitcoin in recent weeks amid the growing perception that it offers protection against inflation and may even become an alternative to gold.
But the FCA has widely classified cryptocurrencies as “speculative” risky investments that could empty the pockets of retailers, given how poorly regulated they are.
“Investing in cryptoassets, or investments and loans linked to them, usually involves taking very high risks with investors’ money,” warned the agency. “… As with all high-risk speculative investments, consumers must make sure they understand what they are investing in, the risks associated with the investment and all applicable regulatory protections.”