Do not invest more money than you can afford to lose.
The European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have published a joint pan-European warning of the risks of buying and/or holding cryptocurrencies.
The regulators note that the cryptocurrencies are not a legal tender, are not backed by a tangible asset and are not controlled or regulated by EU law, governments or financial institutions, therefore are quite risky and the traders are not protected. The authorities are therefore concerned that an an increasing number of Europeans are buying cryptocurrencies with the expectation that their value will continue to grow, “without being aware of the high risk of losing their money invested.”
According to the regulators, the bitcoin and the likes are showing “clear signs of a pricing bubble” and have “extreme price volatility”. Besides, neither the exchanges, nor the wallets are regulated and their users are not guaranteed any protection in case things go haywire.
“For example, if a VC exchange platform or a digital wallet provider fails, goes out of business, or is subject to a cyber-attack, funds embezzlement or asset forfeiture as a result of law enforcement actions, EU law does not offer any specific legal protection that would cover you from losses or any guarantee that you will regain access to your VCs holdings”, the regulators wrote. These risks have already materialised on numerous occasions around the world.” Perhaps the most recent example are the problems of the Italian cryptocurrency exchange BitGrail and its inability to return the stolen Nano coins worth $170 million.
There are other risks, as well: lack of liquidity of the asset, hence no “exit strategy”, lack of price transparency, operational disruptions, misleading, incomplete or confusing information, the inability to use the cryptocurrencies as a payment method or as a sensible long-term investment like retirement planning or savings.
The warning of the three EU financial regulators is much similar to that of many other national and regional regulators across the world and repeats the concerns of senior bankers and economists, but they do little to quell the global cryptocurrency enthusiasm, at least for now.