Consumers have been warned over the risk of investing in cryptocurrencies on the promise that they’ll receive high returns.
The Financial Conduct Authority (FCA) issued guidance to consumers this week highlighting the perceived dangers of investing in the often-volatile cryptocurrency market.
In a statement, the FCA warned that consumers are at increased risk with cryptoasset-related investments as they are unlikely to have access to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme.
“As with all high-risk, speculative investments, consumers should make sure they understand what they’re investing in, the risks associated with investing, and any regulatory protections that apply,” the FCA said.
The watchdog added that prospective investors “should be wary if they’re contacted out of the blue” or pressured to invest in cryptocurrencies.
In particular, the FCA highlighted issues with price volatility and the complexity of products available to consumers.
“Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses,” it said.
Many products and services related to cryptocurrencies also “make it hard for consumers to understand the risks” while firms may overstate potential returns, the watchdog insisted.
Similarly, there are no guarantees that a cryptoasset can be converted back into cash, the FCA said.
“Converting a cryptoasset back to cash depends on demand and supply existing in the market.”
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The FCA advised consumers to take precautions when investing. This includes checking if companies feature on the Financial Services Register.
If a company is not listed consumers should “ask the firm whether they are entitled to carry on business,” the FCA said.
The warning comes amid a period of extreme fluctuation for Bitcoin, which has surpassed its record price twice since the beginning of the year.
On Friday 8th, Bitcoin reached a record value of $42,000. However, the cryptocurrency’s price plummeted by 28% on Monday.