The Financial Conduct Authority (FCA) has issued a warning to consumers over firms advertising high returns based on cryptoassets, highlighting the risks that they should be prepared to “lose all their money.”

The regulator has issued the alert after a surge in the value of cryptocurrencies in recent weeks, with Bitcoin hitting record highs of $41,000 last week before falling sharply this morning (Monday).

In a statement this morning, the FCA said it was “aware that some firms are offering investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns.”

The financial watchdog said that investing in cryptoassets, or investments and lending linked to them, generally involves “taking very high risks with investors’ money”, warning that If consumers invest in these types of product “they should be prepared to lose all their money.”

The FCA’s concerns about high-return investments based on cryptoassets include:

Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements.

Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.

Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market.

Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.

Marketing materials: Firms may overstate the returns of products or understate the risks involved.

The regulator banned the sale of crypto derivatives to retail consumers in October last year.

The FCA added: "Consumers should be aware of the risks and fully consider whether investing in high-return investments based on cryptoassets is appropriate for them.
“They should check and carefully consider the cryptoasset business involved.”

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