Britain’s financial watchdog issued a dire warning to cryptocurrency traders on Monday when Bitcoin took investors on another wild ride.
The UK’s Financial Conduct Authority said consumers investing in the red-hot cryptocurrency market “should be willing to lose all their money” because of the so many risks involved.
Firms promoting crypto investments may overestimate the returns that traders will reap and underestimate the risks of the market, and investors buying in are unlikely to have access to consumer protection if things go wrong, regulators said.
“Consumers should be aware of the risks and fully consider whether investing in high-return investments based on cryptoassets is right for them,” the agency, known as the FCA, said in the warning. “They should monitor and carefully consider the cryptoasset activities involved.”
Officials also noted that there is no guarantee that digital currencies can be converted back to cash and their prices are known to fluctuate greatly.
Monday provided yet another example of that volatility as the price of Bitcoin – the world’s largest cryptocurrency – plunged after a record-breaking rally last week.
Bitcoin was trading at $ 33,554.28 as of 9:41 am, down nearly 15 percent from the day before and about 20 percent from its all-time high of $ 41,962.36 it hit Friday, according to CoinDesk data.
Other popular coins also suffered heavy losses – Ethereum, the second largest cryptocurrency by market value, recently dropped about 20 percent to $ 1,031.48, while XRP was down about 15 percent at about 28 cents.
Institutional investors have helped drive the price of Bitcoin up in recent weeks amid growing perception that it offers protection against inflation and could even become an alternative to gold.
But the FCA generally labeled cryptocurrencies as risky, ‘speculative’ investments that could empty retailers’ pockets, given the limited regulations they have.
Investing in cryptoassets, or related investments and loans, generally involves taking very high risks with investors’ money, the agency warned. “… As with all risky, speculative investments, consumers must ensure they understand what they are investing in, the risks involved in investing and any legal protections that apply.”