EU financial regulators warn consumers on the risk of trading crypto assets

The European Supervisory Authorities (EBA, ESMA and EIOPA – the ESAs) warned consumers on Thursday that many crypto-assets are highly risky and speculative.

ESMA’s announcement noted that crypto-assets are not a suitable investment for most retail consumers or as a means of payment or exchange. The regulator warned that consumers face  very real probability of losing all their invested funds if they buy these assets.

The warning further detailed that consumers should be wary of misleading advertisements, including via social media and influencers. Consumers should be particularly skeptical when being promised fast or high returns, especially those that look too good to be true.

Additionally, the lack of protection to consumers when trading crypto-assets and related products should also be taken into account as these products typically fall outside existing protection under current EU financial services rules.

European Union

ESMA further explained the risks behind trading crypto-assets. Many of them are are subject to sudden and extreme price movements and are speculative as their price relies solely on consumer demand. These products are often aggressively advertised to the public with market information that often can be unclear, incomplete, inaccurate or even purposefully misleading.

The regulator further stated:

Numerous fake crypto-assets and scams exist and you should be aware that their sole purpose is to deprive you of your money using different techniques, for example phishing.

In addition, how prices are determined and the execution of transactions at exchanges is often not transparent. Moreover, the distributed ledger technology underpinning crypto-assets can bear specific risks related to cyber-attacks. Several issuers and service providers for crypto-assets, including crypto exchanges and wallet providers, have experienced such problems.

The EU Parliament’s Committee on Economic and Monetary Affairs recently voted and rejected the proposed bill that would have effectively banned Bitcoin and many other cryptocurrencies in the European Union over their energy consumption.

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