Crypto-assets are high-risk. Their value can rise and fall sharply, and you can lose all the money you put into them.
The main risks
- Sharp changes in value. The value of many crypto-assets moves dramatically over short periods and can fall to nothing.
- Little or no protection. In many countries, crypto-assets are not covered by deposit protection or compensation schemes. Even where they are regulated, as in the EU under MiCA, the protections are not the same as those for bank deposits.
- Final transfers. Transfers recorded on a blockchain generally cannot be reversed. Mistakes, and payments obtained by fraud, usually cannot be undone.
- Lost or stolen keys. If the private keys or recovery phrase controlling crypto-assets are lost or stolen, access to the assets is usually lost for good.
- Failure of firms. Businesses that hold crypto-assets for customers can become insolvent, be hacked or behave dishonestly.
- Scams. Fraud involving crypto-assets is common, including fake platforms, impersonation and promises of easy gains. Nobody can promise that an asset will rise in value.
- Software risk. Protocols and smart contracts can contain errors that lead to losses.
- Legal and tax risk. Rules differ between countries and change over time, and transactions may have tax consequences.
- Complexity. Many crypto-asset products are difficult to understand fully, even for experienced people.
Our position
Knowlesta writes history. We do not encourage anyone to acquire crypto-assets and we give no advice about them. If you are considering any financial decision, take independent advice from an authorised professional and check the registers and warning lists published by your national financial regulator.
Further reading from official sources: ESMA consumer warnings and the FCA ScamSmart pages (UK).