In January 2021, the UK’s Financial Conduct Authority put out a stark warning to investors considering – or already investing in – cryptocurrency. In a statement on their website, they said, “The FCA is aware that some firms are offering investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns. 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.”
Of course, any investment comes with risk attached. But with cryptocurrency, is this risk worth the potential reward?
The cryptocurrency boom
In recent weeks and months, various cryptocurrencies have hit the headlines thanks to their strong performance. In mid-February, Bitcoin hit $50,000 for the first time, thanks to its growing mainstream appeal, and increasing number of celebrity backers. Elon Musk’s recent interest in Dogecoin has increased its value and could shape its future, while Ethereum’s recent rally – as well as that of Bitcoin – has led the cryptocurrency economy to jump to over $1.5 trillion.
The market appears to be booming. So why the FCA warning?
Proceed with caution
In recent months, the FCA has cracked down on cryptocurrency: first, introducing a Temporary Registration Regime in December 2020, followed by banning the sale of derivatives and ETNs in January due to the potential harm they can cause.
The FCA has advised investors to check that the firm they are using for cryptocurrency investment is either on the Financial Services Register or has Temporary Registration – any firm to which one of the two does not apply is trading unlawfully. Furthermore, they warn of the huge risks involved in cryptocurrency investment in five areas: consumer protection, price volatility, product complexity, charges and fees, and marketing materials.
There is no doubt that there is potentially a great deal of money to be made from cryptocurrency. But with the market so volatile, and with the risks often harder to understand than in other investment types, is it really worth the risk?
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