Savers warned over dangers of bitcoin
Be prepared to lose all your money, says FCA
SAVERS who pile their money into digital currencies such as bitcoin should be prepared to lose everything, the City watchdog has warned.
Investors have been rushing into bitcoin recently as its value has rocketed. Anyone who bought £1,000 worth of the crypto-currency at its most recent trough last March, and sold it last week at its all-time high, would have made a profit of more than £7,000.
But the Financial Conduct Authority (FCA) has reminded investors that assets such as bitcoin, Ethereum and Ripple are ‘very high-risk’, and savers could lose all their money.
Holders of bitcoin have been on a white-knuckle ride recently. During its most recent low point last March, the digital currency was worth $3,850.
Last week it hit all-time highs of $41,999, shooting up from $30,000 in less than seven days.
But it is on the way back down again, slumping by more than 20 per cent back towards $30,000 yesterday alone in the worst oneday fall in ten months. The FCA, led by Nikhil Rathi ( pictured), said it was aware of firms offering investments in digital currencies, or linked to them, promising high returns. The watchdog said: ‘If consumers invest in these types of product, they should be prepared to lose all their money.’ It added that customers should be especially wary if they have been contacted out of the blue by a firm, and are being ‘pressured to invest quickly or promised returns that sound too good to be true’.
Bitcoin, which first began to be traded in 2010, is generally considered to be the original and most popular crypto-currency.
It can be used to pay for items online – in its early days it was often associated with illicit activities such as the drugs trade and money laundering, since transactions do not pass through a bank, but now it has been adopted by mainstream payments companies like Paypal.
It exists purely online – there are no physical coins or gold backing its value, and it is not controlled by a central bank or other authority. It is this lack of intrinsic value which some believe makes it unstable and risky.
Bitcoin’s advocates, however, claim the crypto- currency is a good store of value since there are a limited number of the digital ‘coins’ which can ever exist.
They argue that this means demand – and therefore value – should in theory be sustained.
But Laith Khalaf, financial analyst at AJ Bell, said: ‘The idea of getting rich quick is as dangerous as it is attractive, and anyone who invests in crypto-currencies should be prepared to lose their shirt, or a considerable portion of it.’