The Financial Conduct Authority (FCA) published research this month which found 2.3 million people have crypto assets in the UK, a sharp rise from 1.9 million people last year. Express.co.uk spoke to cryptocurrency experts about some of the major risks involved with investing in cryptocurrency.
As the cryptocurrency market has expanded, many people have fallen victim to crypto scams.
Cryptocurrency expert Erica Stanford, lecturer in cryptocurrency at Warwick Business School, crypto network founder and author of Crypto Wars: Faked Deaths, Missing Billions and Industry Disruption?, told Express.co.uk: “The most spoken about is the risk of falling victim to one of the many scams affecting the crypto space.
“Sadly, as with any emerging technology – but it’s far more extreme in the space of digital money, where gains can be high – many opportunists have taken advantage of the hype and there are many scams out there, often vast and very sophisticated.
“These scams use clever marketing, often multi-level-marketing, and stop at nothing to target their victims. One has to be alert.”
Lack of regulation
Along with well-known cryptocurrencies like bitcoin and Ethereum, there are loads of other cryptocurrencies out there.
There is a high risk associated with investing in any cryptocurrency because many cryptocurrencies are largely unregulated.
Sheldon Mills, FCA’s executive director for consumers and competition, said people should be aware they can “lose all their money” when investing in cryptocurrencies.
In light of the FCA’s findings which suggest more people hold cryptocurrency now than last year, Mr Mills said: “The research highlights increased interest in cryptoassets among UK customers.
“The market has continued to grow, and some investors have benefited as prices have risen.
“However it is important for customers to understand that, because these products are largely unregulated, if something goes wrong they are unlikely to have access to the FSCS (Financial Services Compensation Scheme) or the Financial Ombudsman Service.
“If consumers invest in these types of products, they should be prepared to lose all their money.”
Volatility of crypto markets
One of the “most prevalent” risks of investing in cryptocurrency is the volatility of crypto markets.
Ms Stanford said: “Crypto markets are highly manipulated, and prices can spike, and crash, by tens of percent in a day.
“There are so many factors that influence these markets – from individual tweets to changes in a government’s policy – and these factors can’t be predicted, so it can be very easy to lose money.”
Anyone considering investing in cryptocurrencies should be aware of the volatile nature of cryptocurrency markets.
Jeremy Cheah, Professor of Crypto-Finance and Digital Investment at Nottingham Business School, told Express.co.uk: “There are lots of risks involved in investing in cryptocurrency.
“For example a platform closing down, lack of regulations and enforcement to protect investors’ rights, high price volatility in cryptos driven by sentiment trading (irrational exuberance), threat of government shutting down mining activities, for example in China recently, lack of fundamental or intrinsic value – that is, not backed by any collateral or asset, bugs in codes, etc.
“People should always do their research and be aware of the risks in crypto investment before they invest.”
The information in this article does not equate to financial advice. Anyone considering investing in cryptocurrency should understand the risks involved.