Due to the potential for significant losses, the FCA considers investments in cryptoassets to be high risk.
What are the key risks?
1. You could lose all the money you invest
The value of most cryptoassets can be extremely volatile – prices can fall just as rapidly as they rise. You should be prepared for the possibility of losing your entire investment.
Additionally, the cryptoasset market is largely unregulated in the UK. This lack of oversight increases the risks of losing money due to factors such as cyberattacks, fraud, or the failure of the firm managing your assets.
2. You are unlikely to be protected if something goes wrong
Cryptoassets are not classified as ‘specified investments’ under the UK regulatory framework. This means the Financial Services Compensation Scheme (FSCS) does not offer protection for these types of investments. You can check the FSCS investment protection tool for more information.
Likewise, the Financial Ombudsman Service (FOS) typically cannot help with complaints related to cryptoasset firms, especially if they are not FCA regulated. Even where a firm is regulated, the FOS does not cover poor investment performance. Find more details on FOS protection here.
3. You may not be able to sell your investment when you want to
There is no guarantee of liquidity. Your ability to sell a cryptoasset depends on market demand, and there may not be a buyer when you want to sell.
Additionally, operational issues, such as technical failures, cyberattacks, or the mishandling of client funds can delay or prevent the timely sale of your cryptoassets.
4. Cryptoasset investments can be complex
Many cryptoassets involve complex technologies and structures that can be difficult to understand. This complexity may obscure the full range of risks involved.
Always do thorough research before investing. Be especially cautious, if something sounds too good to be true, it probably is.
5. Don’t put all your eggs in one basket
Investing all your money in one type of asset increases your risk exposure. Diversifying your investments can reduce the impact of any single loss.
As a general guideline, you should not invest more than 10% of your overall assets in high-risk investments, including cryptoassets.
For more information on how to protect yourself, visit the FCA’s website here.
To learn more specifically about cryptoassets, visit the FCA’s dedicated crypto page here.