The Financial Conduct Authority (FCA) has put out another warning to consumers about the risks associated with investing in cryptoassets and non-fungible tokens (NFTs) following the popularity of certain recent social media posts about them.
This comes amid a crypto meltdown, with coins such as Ethereum, Dogecoin and Avalanche suffering huge price collapses.
Bitcoin is now less than half its peak value at $26,401, while ‘stablecoin’ Terra has seen 99% of its value wiped.
The watchdog said: “We cannot comment on individual products. However, the FCA has not been given regulatory oversight over direct investments in cryptoassets and NFTs.
“There are no consumer protections for those who buy any cryptoassets and NFTs, and they are not FSCS protected. As a result, if you buy cryptoassets you should be prepared to lose all the money you invest.”
See also: FCA to tighten rules around promotion of high-risk investments
‘Crypto wild west’
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ‘’Fears about rampant inflation and the abrupt ending of the era of cheap money have sent cryptocurrencies careening down a cliff edge, as investors scuttle away from risky assets.
“Crypto fans, lulled into a false sense of security amid sharp price rises during the pandemic, are now facing a rude awakening with assets plunging across the board with Ether down by just under 20% since yesterday, despite notching up a slightly recovery in the last few hours.
“Bitcoin has crawled back up from its low of $26,000 reached early today, and is currently trading a nudge above $28,000 but it’s down 20% over the last five days.
“Hopes that bitcoin would act as an inflation hedge have fast evaporated as the cryptocurrency has lost more than half its value since its November high, as consumer prices have soared.
“We’ve had warnings time and time again from the FCA that investors risk losing all their money if they invest in the crypto wild west and the red flags it’s been waving have been shown to be prescient given the downwards rollercoaster ride crypto is currently on.
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“The FCA reserved its most recent warning this week for NFTs, tokens that have been snapped up by speculators on a wave of euphoria, which are now crashing back down to earth. It’s a timely reminder that investors who dabble in such risky assets have very little protection, as they are not regulated beyond anti-money laundering legislation.
“There have been examples of hackers gaining access to keys to digital wallets and those taking the plunge have very little recourse to action should anything go wrong.
“This latest plunge in the wheel of fortune demonstrates that speculating in cryptocurrencies is extremely high risk and are not suitable for the vast majority of people. Cryptocurrency values are driven entirely by the speculation that in the future they will have a meaningful role in the financial system.
“This makes it impossible to attribute a sound valuation to, or to make a call on, their current or future price. Their use as a means of exchange is very limited, and until they’re widely accepted, the price will continue to be driven by purely by speculation and right now with confidence plummeting, the use case seems even shakier.
“There may be speculators waiting in the wings to buy what they may see as just a big temporary dip, but expect the volatility to continue as liquidity washing around financial markets evaporates as interest rates are hiked further.”
As a result, Streeter believes the recent events may propel calls to regulate crypto and NFTs sooner than expected “to reduce knock on effects to the financial system”.
