City watchdog issues crypto warning as price of Bitcoin soars
City watchdog the Financial Conduct Authority (FCA) has warned consumers that investing in cryptoassets is “very high risk”, after some firms promised high returns for the investment.
The FCA said customers “should be prepared to lose all their money” if they invest in cryptoassets, which is considered a high risk and volatile investment strategy.
The warning comes as the price of Bitcoin, the most well-known cryptocurrency, soared to over £40,000 last week – a record-breaking day.
The financial watchdog is concerned crypto customers are at high risk of financial losses, as cryptoassets are so volatile. It said crypto is also difficult to understand and convert back to cash.
The FCA warned cryptoasset investors are unlikely to have access to the Financial Services Compensation Scheme or the Financial Ombudsman Service if they were to lose money. Both bodies can offer consumers compensation on regulated financial products if they are mis-sold or if something goes wrong.
Bitcoin, which is created and traded using blockchain technology, has surged in popularity as is considered an attractive hedging option against traditional financial markets. Many traders have flocked to the cryptocurrency considering it a safe-haven asset, which has seen its price increase more than 700 per cent since March.
It is the first surge for Bitcoin, which was created just 12 years ago, since December 2017 when it jumped to just under $20,000 before crashing to lows of $3,300.
Since 10 January 2021, all UK cryptoasset firms must be registered with the FCA under regulations to tackle money laundering. Operating without a registration is a criminal offence.
AJ Bell financial analyst Laith Khalaf said consumers should be on high alert for unsolicited communications linked to Bitcoin or other crypto currencies and should consider any marketing material with an extremely critical eye. They should also ensure the firm they are dealing with is regulated.
“The idea of getting rich quick is as dangerous as it is attractive and anyone who invests in crypto currencies should be prepared to lose their shirt, or a considerable portion of it,” he continued.
“The regulator is clearly concerned that the high risks already inherent in cryptoassets are being compounded by scam activity, as well as unregulated firms targeting consumers with marketing material that highlights the rewards, but not the potential downside, of investing in cryptoassets.”