EU Regulators Warn Investors About the High Risks of Investing In Cryptocurrencies

Top Market regulators in Europe have warned investors about the increasing high risks associated with crypto investing. The European Securities and Markets Authority (ESMA) gave this warning in its latest report on Trends, Risks, and Vulnerabilities published on Wednesday.

Continued Warnings On Cryptocurrency Risks

The ESMA alerted consumers and investors about the risky and speculative nature of cryptocurrencies. The authority stated that most cryptocurrencies remain unregulated by the authorities. Investor protection guidelines do not cover those who invest in them. As such, there are no guarantees or safeguards to protect investors against market abuse. The EU regulator noted in its report that the rapid rise in Bitcoin [coin_stats_table symbol="BTC"] and other cryptocurrencies is a cause of concern for investors. Bitcoin's bull run that sees it break through $60,000 shows its “highly risky and speculative,” the Paris-based regulator explained. The ESMA outlined some benefits of the DeFi industry in its report. It mentioned disintermediation, 24/7 availability, and censorship resistance. But, it faulted the sub-sector for its scalability and governance. The ESMA plans to continue its monitoring of developments in the DeFi space. It foresees the space raising specific regulatory and supervisory challenges. The report further analyzed the impact of coronavirus (Covid19) on financial markets. It disclosed that in the first quarter of 2020, investment funds faced a significant deterioration of liquidity in some segments of the fixed income markets combined with large-scale investment outflows from investors.

“Overall, continuing uncertainty on the further economic impacts of the COVID-19 pandemic means short-term credit risks remain significant, even with more favourable post-COVID-19 signs over the medium term."

This is not the first time the EU regulator would be cautioning the public on cryptocurrency risks. In February 2018, the European Supervisory Authorities (EBA, EIOPA, and ESMA – together with the ‘ESAs’) put out a joint statement to warn consumers of the risks involved in buying virtual currencies. The regulator also went on to present a legislative proposal calling for the crypto market to be regulated. This was submitted in September 2020. ESMA, however, noted in the report that the proposal is not yet law, and consumers should be reminded that it's still subject to the outcome of the co-legislative process.

India Takes Action Against Crypto Ownership

Cryptocurrencies have gained widespread attention in recent years. Tesla's Bitcoin investments added more credibility to the sector. As regulators in the EU take a cautionary outlook on cryptos, some countries like India have decided to take the bull by the horn. The country plans to place a blanket ban on all virtual currencies. A proposed Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is likely to be introduced at the next Parliamentary session.