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 cryptoassets.
- The cryptoasset 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 recognized as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker here.
- 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 cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset 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 cryptoassets at the time you want.
4. Cryptoasset investments can be complex
- Investments in cryptoassets 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.
Risks specific to stablecoins
The section above sets out the key risks related to investing in cryptoassets generally. However, there are additional risks associated with trading stablecoins which we offer customers. These particular risks are:
- Counterparty risk: many stablecoins (including USDT and USDC) are backed by collateral (e.g. fiat currency like US dollars, or another type of cryptoasset) that is maintained by a third party. The value of the stablecoin is at risk if that third party becomes insolvent or fails to maintain the required collateral.
- Collateral risk: the value of a stablecoin is at risk if the value of the collateral declines or becomes volatile.
- Redemption risk: it may not be possible to redeem a stablecoin for the underlying collateral, or the redemption process might be delayed, if there is high market volatility or if operational issues arise.
- FX risk: stablecoins such as USDT and USDC are denominated in US dollars. Movements in the USD:GBP and USD:EUR exchange rates impact the rates you pay on stablecoin trades using GBP and EUR.
- Algorithm risk: some stablecoins use algorithms to maintain stability (e.g. by adjusting the supply based on demand). If the algorithm fails or behaves in an unusual manner, the stablecoin could become unstable and lose potentially all of its value. Please note that you are not currently exposed to this risk when trading stablecoins with us as the stablecoins that we currently offer (USDT and USDC) do not rely on algorithms to maintain their stability.