European Regulators Warn Crypto Investors About Risks of “Losing Everything”

  • European supervisory bodies claim that cryptocurrency investors have no protection against scams or losses.
  • They highlight that cryptocurrencies are highly volatile and risky assets, whose prices are based exclusively on demand.

European Union regulators have once again warned traders about the risks run by investing in cryptocurrencies. In a statement published on Thursday, the bloc’s authorities said that digital assets are “risky” and “speculative,” and discouraged retail savers from using them as an investment option or a means of payment.

"Consumers face the real possibility of losing all the money invested," warned the statement quoted by Reuters. The warning is made by the European Banking Authority, together with the European Securities and Markets Authority and the European Pension and Retirement Insurance Authority.

European supervisory bodies also warn that cryptocurrency investors have no protections. They underlined traders’ inability to raise claim before any instance, and that they are not protected by the financial services regulations of the European Union.

The regulators have called on users to act with caution before making any investment in the asset class, especially in regard to projects promoted by “misleading advertising,” which is commonly found on social networks and the accounts of influencers which promise high rates of return or very quick profits.

“You may be a victim of scams, fraud or cyberattacks”

In the statement, the supervisory bodies prompted people to keep other underlying risks in mind.

“Prices can go down and up quickly in short periods; you may be a victim of scams, fraud, operational errors or cyber attacks; And it is unlikely that you will have rights to protection or compensation if something goes wrong”, the statement said.

Likewise, they encouraged crypto investors to ask themselves if they are willing to lose all of their money and take big risks, whether they are sure that they can protect their personal keys, and if the devices they use to buy, store and sell cryptocurrencies are safe.

The statement urges investors to check if the companies to which they entrust their money have a good reputation, or appear on any black lists from regulators.

“Many crypto assets suffer from sudden and extreme price fluctuations and are speculative in nature,” they note. While indicating that the price of cryptocurrencies "is often based solely on consumer demand", since they are not backed, and "you can lose a large amount of money or even all the money invested".

The chorus of warnings from the European authorities have been joined by the CNMV, the Bank of Spain and the General Directorate of Insurance and Pension Funds, according to newspaper El País on Thursday. Spanish regulators also subscribe to the warnings issued by the wider European regulators, and recalled the release of similar alerts in 2018 and 2021.

On the Flipside

  • This week it was also learned that the International Monetary Fund asked the Argentine government to take measures to “discourage” the use of cryptocurrencies in the country.
  • The international lender is promoting the issuance of central bank digital currencies (CBDCs) in a clear sign that governments are preparing to compete with private cryptocurrencies.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

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