European regulators remind crypto investors they could ‘lose all their money’

Consumers should be prepared to lose all their money if they invest in cryptocurrencies, a group of Europe’s regulators has warned on Thursday.

As the popularity of cryptocurrencies grows, the European Union’s securities, banking and insurance watchdogs urged investors to understand what they were investing in and the financial risks involved.

In their warning, the ESAs highlight that these assets are not suited for most retail consumers as an investment or as a means of payment or exchange. As consumers, they face the very real possibility of “losing all their invested money if they buy these assets,” it said.

Europeans were also warned not to fall for scams in which digital crooks use fake celebrity endorsements to promote investments. A greater use of social media websites has been identified as one of the reasons for this, with dummies in particular were more likely to be reliant on Facebook or twitter for investment tips.

The ESAs said some crypto investment firms may be overstating potential payouts, or understating the risks. As such, consumers should be alert to “the risks of misleading advertisements, including via social media and influencers; and should be particularly wary of promised fast or high returns, especially those that look too good to be true.”

The European supervisory authorities also cited other concerns including price volatility, the complexity of products offered and the lack of consumer protection regulation around many of crypto assets.

ECB is actively investigating a ‘digital euro’

The unregulated nature of cryptoassets was highlighted again as these regulators warned potential investors that they were unlikely to be protected by schemes that help them reclaim their assets when companies go bust.

“The ESAs also warn consumers that they should be aware of the lack of recourse or protection available to them, as crypto-assets and related products and services typically fall outside existing protection under current EU financial services rules,” the statement reads.

The latest warning comes a few weeks after the ECB launched a two-year investigation into a digital euro. However, the actual release of the ECB-backed cryptocurrency in the bloc’s 19 members could take another two years on top of the technology design and investigation stage.

ECB President Christine Lagarde said the project would complement the existing banking system rather than trying to ‘jeopardize’ it. She added that the experiments to consider the merits of minting a ‘digital euro’ are going through a complex decision-making process.

The central bank said it identified two trends in global payments, one is the increasing consumer preference for digital payments, and the other is the competition to dominate payments on a global scale.

The ECB chief was also keen to emphasize that the Frankfurt institution has not yet decided to issue a central bank digital currency (CBDC). But if all goes well, the central bank could launch a digital currency by 2025 if European regulators give the project the green light.