Estimated reading time: 2 min

Risk Summary

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  1. You could lose all the money you invest
    • The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.
    • The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.
  2. You should not expect to be protected if something goes wrong
    • The Financial Services Compensation Scheme (FSCS) doesn’t protect this type of investment because it’s not a “specified investment” under the UK regulatory regime – in other words, this type of investment isn’t recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker here. [https://www.fscs.org.uk/check/investment-protection-checker/ ]
    • The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm. Learn more about FOS protection here. [https://www.financial-ombudsman.org.uk/consumers ]
  3. You may not be able to sell your investment when you want to
    • There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time.
    • Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want.
  4. Cryptoasset investments can be complex
    • Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.
    • You should do your own research before investing. If something sounds too good to be true, it probably is.
  5. Don’t put all your eggs in one basket
    • Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.
    • A good rule of thumb is not to invest more than 10% of your money in high-risk investments. [https://www.fca.org.uk/investsmart/5-questions-ask-you-invest]

If you are interested in learning more about how to protect yourself, visit the FCA’s website here. [https://www.fca.org.uk/investsmart]

For further information about cryptoassets, visit the FCA’s website here. [https://www.fca.org.uk/investsmart/crypto-basics]

Note if purchasing/trading Stablecoins:

  1. Stablecoins can carry Volatility Risk, even though they are supposedly “backed” by a fiat currency 
    • Information about the composition of stablecoin backing assets is often unavailable. Be wary that the expected value of 1:1 does not always hold up if the backing assets held are insufficient or unavailable, presenting significant risk and the possibility of significant loss of value
    • If a Stablecoin experiences “de-pegging,” not only may significant value be lost but you may have no protected claim against the backing assets themselves, leading to the possibility of being treated as an unsecured creditor.

Note if purchasing/trading Utility Tokens:

  1. The value of Utility Tokens are tied to the functionality within the ecosystem that it is employed in as a Utility.
    • The value of utility tokens can be highly volatile. Factors such as market sentiment, demand for the associated services, and overall market conditions can contribute to significant price fluctuations, significantly impacting the token’s value and increasing the risk of loss.
    • Utility token sales, particularly Initial Coin Offerings (ICOs), have been associated with scams and fraudulent activities. Investors may face challenges in distinguishing legitimate projects from fraudulent ones, leading to potential financial losses. It is essential that you carry out your own research before investing to ensure the suitability and protection of your assets.