Why did the FCA drop a warning against cryptocurrency investment?

UK regulator cautions consumers of crypto scams and unregulated marketing which promises high returns as Bitcoin witnesses massive drop after all-time high
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The crypto market is booming despite its volatile nature. The rapid price appreciation of Bitcoin has attracted hedge fund managers, crypto investors as well as newbies. As investors are increasingly injecting more cash in digital assets, the UK’s financial watchdog Financial Conduct Authority [FCA] published a warning regarding false marketing promising high ROI on crypto and highlighted the investment risk involved in trading.

“Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money,” the FCA said in a statement. “If consumers invest in these types of product, they should be prepared to lose all their money.”

Alongside risks surrounding lack of consumer protection and erratic price volatility, FCA stressed on a slew of other perils linked to investment in crypto assets such as product complexity, charges and fees, and marketing material. It warned: “Consumers should be aware of the risks and fully consider whether investing in high-return investments based on cryptoassets is appropriate for them. They should check and carefully consider the cryptoasset business involved.”

The crypto ecosystem has been garnering much investment – especially as more financial companies and banks have started encouraging the use of digital currencies. Keeping this in mind, FCA added that should consumers trading in crypto face any challenges or complaints, they are unlikely to get assistance from Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS) as it does not cover cryptoasset-related investments.

This warning comes after Bitcoin went down 17% from the $41,500 peak it reached on 8 January. Currently, Bitcoin is trading at circa $34,000 at the time of writing. Additionally, the ban on derivatives linked to cryptocurrencies too came into effect on 6 Jan. The watchdog also ruled that all the crypto firms based in the UK will have to be registered with the FCA to comply with regulations.

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