What are the risks associated with cryptoassets?
Risk Warning - Notice to UK Users
Estimated reading time: 2 mins
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 crypto assets.
The crypto asset 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.
The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm. Learn more about FOS protection here.
3. You may not be able to sell your investment when you want to. There is no guarantee that investments in crypto assets can be easily sold at any given time. The ability to sell a crypto asset 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 crypto assets at the time you want.
4. Cryptoasset investments can be complex. Investments in crypto assets 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. Learn more here.
If you are interested in learning more about how to protect yourself, visit the FCA's website here.
For further information about cryptoassets, visit the FCA's website here.
The risks associated with different cryptoassets
Keep in mind that crypto assets are not all the same. Before investing, you should understand the specific risks tied to each category:
Stablecoin Risks: Vulnerable to collateral mismanagement, depegging from their target value, and centralisation/regulatory issues that could affect their stability and usability.
Meme Coin Risks: Highly speculative with extreme price volatility, limited utility, dependence on community sentiment, and susceptibility to pump-and-dump schemes.
DeFi Risks: Vulnerable to smart contract exploits, liquidity risks when users withdraw funds simultaneously, and governance manipulation that can affect the underlying protocol.
Wrapped Token Risks: Subject to counterparty risk from custodians, smart contract vulnerabilities, liquidity constraints, and potential instability of the peg to the underlying asset.
Staked Asset Risks: Exposure to slashing penalties, limited liquidity during lock-up periods, validator failures that could affect rewards, and fluctuating reward rates.
Before investing, you should ensure you understand the specific risks tied to each one. Take a moment to review our asset risk summaries for a better understanding of the key risks associated with some of the main categories of cryptoassets available on Tap. Explore our asset risk summaries.
Approved by Archax on 17/10/2024