According to the regulators, investors must be aware that investor protection is lower than with other financial products.
(Photo: Reuters)
Frankfurt Three European regulators are warning consumers about the risks of trading digital currencies. Many cryptocurrencies are “highly risky and speculative,” warn the European Banking Authority (Eba), the European Securities and Markets Authority (Esma) and the European Insurance and Occupational Pensions Authority (Eiopa) in a joint statement on Thursday.
The warning comes in the context of “growing consumer activity and interest in crypto assets,” the statement said, and the authors are concerned about “aggressive publicity promotion of these assets and related products, including through social media.” “.
According to the authorities, crypto values are neither suitable for investments nor as a means of payment for most private customers, because consumers could lose “all their invested money”.
In this regard, the institutions point out that some crypto assets and related products are promoted with marketing material that may be “unclear, incomplete, inaccurate, or even intentionally misleading.” For example, social media ads could be “very brief” and focus on the potential rewards but not the “high risks involved”.
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Particular care should be taken with influencers on social media. These would normally have a financial incentive to market certain crypto products or services. Consumers should be particularly careful when high returns are promised particularly quickly or profits that “look too good to be true” in this way.
“No rights to protection or compensation”
At the same time, the authorities warn that in the case of large losses, the same protections often do not apply as in other cases, since cryptocurrencies, products and services usually do not fall under the existing protections under the current EU financial services rules. “They probably have no rights to protection or compensation if something goes wrong,” it says.
In addition, the regulatory authorities draw attention to points that consumer advocates have been emphasizing for years: prices on the crypto market could rise and fall quickly within a short period of time, users could become victims of fraud, deception, operational errors or cyber attacks, or of cases of market manipulation.
Most recently, cryptocurrencies had increasingly come into the focus of politics because of the war against Ukraine, because politicians feared that Russians could use cryptocurrencies to circumvent sanctions. ECB boss Christine Lagarde said at the end of February: “There are always criminal ways to circumvent a ban.”
In their current warning, the regulators also address the sanctions and the war against Ukraine. Regarding the situation in Ukraine and “with a view to ensuring the proper implementation of the sanctions in force”, Esma, Eba and Eiopa would welcome the clarification of the Council of the European Union. On March 9, he reiterated that trading in digital assets in the EU is prohibited for certain companies and individuals in Russia and Belarus.
It was only in February that the Financial Stability Board warned of the dangers posed by cryptocurrencies. The agency expressed concern for global financial stability. Cryptoasset markets were evolving rapidly, the report said at the time, and “could reach a point where they pose a threat to global financial stability due to their size, structural vulnerabilities, and increasing interdependence with the traditional financial system.”
The experts also warned other regulatory authorities with a view to decentralized finance, or Defi for short, which, like cryptocurrencies, is based on blockchain technology. Without adequate regulation and market oversight, Defi and related platforms could also threaten financial stability, according to the FSB report.
Institutional investors are also cautious about investing in cryptocurrencies. In January, a survey commissioned by wealth manager Nickel Digital Asset Management found that security concerns in particular are keeping professional investors from investing in crypto and digital assets. The volatility in the crypto market or regulatory issues, on the other hand, are less important.
More: Financial Stability Board warns of dangers posed by cryptocurrencies