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FCA Warns Crypto Investors: Be Prepared To Lose Everything

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EDITOR NOTE: When you roll the dice at a casino, it doesn’t matter whether you’re playing a game of chance or skill, a gamble is a gamble. You prepare yourself for the possibility of losing your entire stake. Certain games hold manipulable odds, yet the “fundamentals” of those games skew less toward skill and more toward indeterminacy. The same can be said of Bitcoin, which recently wiped out $170 Billion from the entire cryptomarket. Bitcoin has no intrinsic value. It does not have widespread adoption as a currency. It is not a robust store of value (it just lost billions in less than a day). It’s an expression of speculative fervor. It does have rarity going for it (so does lumber and other illiquid commodities, just saying). But its popularity is of a frenzied type, which makes it even more perilous an “investment.” As the UK’s Fiscal Conduct Authority warns, be prepared to lose all of your money--the entire stake you invested. After all, considering Bitcoin’s lack of fundamentals and weak monetary characteristics, you are gambling when you buy Bitcoin. Of course, you knew that, didn’t you?

Thinking of investing in a cryptocurrency? Be prepared to lose all your money.

That’s the message from the U.K.’s Financial Conduct Authority, which on Monday warned investments and lending products related to crypto come with “very high risks.”

“The FCA is aware that some firms are offering investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns,” the financial services regulator said.

“If consumers invest in these types of product, they should be prepared to lose all their money.”

The warning from the FCA comes amid wild volatility in the cryptocurrency market. Bitcoin and other virtual currencies plunged on Monday, wiping off some $170 billion from the total value of all cryptocurrencies combined.

Bitcoin surged to new records last week, climbing as high as $41,973. Investors increasingly view the digital asset as a hedge against inflation — similar to gold — in times of unprecedented stimulus from governments.

But bitcoin’s wild rise has led some commentators to warn it could be a market bubble likely to burst soon. The world’s most-valuable cryptocurrency has skyrocketed over 300% in the last 12 months. Bank of America in a recent note called it the “mother-of-all-bubbles.”

“The regulator is clearly concerned that the high risks already inherent in cryptoassets are being compounded by scam activity, as well as unregulated firms targeting consumers with marketing material that highlights the rewards, but not the potential downside, of investing in cryptoassets,” Laith Khalaf, a financial analyst at AJ Bell, said in a note Monday.

The FCA has gotten tougher on crypto recently, banning the sale of crypto derivatives to retail investors. The regulator, which introduced a new register for cryptoasset businesses, warned that firms operating without registration are committing a “criminal offence.”

“As with all high-risk, speculative investments, consumers should make sure they understand what they’re investing in, the risks associated with investing, and any regulatory protections that apply,” the FCA said.

“For cryptoasset-related investments, consumers are unlikely to have access to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS) if something goes wrong,” it added.

“Consumers should be wary if they’re contacted out of the blue, pressured to invest quickly or promised returns that sound too good to be true.”

Originally posted on CNBC

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