The meteoric rise of bitcoin has prompted the Financial Conduct Authority to issue a warning about investing in cryptoassets.
The watchdog’s alert comes after bitcoin crashed by as much as 21% over the weekend to $32,389, although that remains 547% above an exchange rate of $5,000 in March 2020.
The FCA said some firms are offering investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns.
‘Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money. If consumers invest in these types of product, they should be prepared to lose all their money,’ it warned.
The regulator listed a number of concerns it had about cryptoassets, including lack of regulatory oversight, price volatility, marketing and charges and fees.
It is also aware of the complex nature of cryptoasset products. ‘The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks,’ it added.
‘There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market.’
Increasing institutional interest in bitcoin has been a major factor behind its rise, with Ruffer revealing it had
Crypto bulls see this sophisticated level of demand as giving substance to the rally, with Citi believing the price of bitcoin could breach $300,000 this year.
Meanwhile JP Morgan suggested bitcoin could rival gold, pushing it towards $146,000 if it becomes established as a safe-haven asset.
Others are not as convinced, with Bank of America Securities chief investment strategist Michael Hartnett describing bitcoin as the ‘mother of all bubbles’ on Friday.