The European Supervisory Authorities (EBA, ESMA and EIOPA – the ESAs) warn consumers that many crypto-assets are highly risky and speculative. These are not suited for most retail consumers as an investment or as a means of payment or exchange.
Consumers face the very real possibility of losing all their invested money if they buy these assets. Consumers should be alert to the risks of misleading advertisements, including via social media and influencers. Consumers should be particularly wary of promised fast or high returns, especially those that look too good to be true.
Consumers 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.
THINGS YOU SHOULD KNOW AND CHECK
You should be aware of the specific risks of crypto-assets and related products and services and carefully weigh up whether the risks are acceptable given your own preferences and financial situation. These include the risk that:
If you are thinking about buying crypto-assets or related products and services, you should ask yourself the following:
This Warning is based on Article 9(3) of the founding Regulations of the ESAs.3 It follows earlier warnings about the risks of buying/holding crypto-assets. 4,5, 6
Crypto-assets can be defined as a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology.
The ESAs note growing consumer activity and interest in crypto-assets, including so-called virtual currencies and the emergence of new types of crypto-assets and related products and services, for instance so-called non-fungible tokens (NFTs), derivatives with crypto-assets as underlying, unit-linked life insurance policies with crypto assets as underlying and decentralised finance (DeFi) applications, that claim to generate high and/or fast returns. The ESAs are concerned that an increasing number of consumers are buying those assets with the expectation that they will earn a good return without realising the high risks involved.
In September 2020, the European Commission presented a legislative proposal for a regulation on markets in crypto-assets.7 The proposal provides a comprehensive framework for the regulation and supervision of issuers and providers of services for crypto-assets with a view to protect consumers and the integrity and stability of the financial system. Consumers are however reminded that the proposal remains subject to the outcome of the co- legislative process.8 Consumers will not currently benefit from any of the safeguards foreseen in that proposal until it is adopted and applies.
As at the date of this warning, there are more than 17,000 different crypto-assets, some of them being sometimes referred to as so-called ‘virtual currencies’ or digital ‘coins’ or ‘tokens’.9 The most prominent crypto-assets to-date include bitcoin and ether, which together represent about 60% of the total market capitalisation of crypto-assets. The energy consumption of some crypto-assets is high, e.g., from mining and validation processes, and consumers should be aware of their environmental impact.10
1 Please note that not being blacklisted is no guarantee that a firm/party is safe to engage with
2 Some Member States in the EU have implemented national rules to regulate certain crypto-assets and related products or services. In addition, providers of some types of crypto-asset services, including exchange services and custody services are required to be authorised or registered for the purposes of anti-money laundering and counter-terrorist financing. Please refer to the relevant competent authority for further details.
3 Regulation (EU) 2019/2175 of the European Parliament and of the Council of 18 December 2019 amending Regulation (EU) 1093/2010 establishing a European Supervisory Authority (European Banking Authority), OJ L 331, 15.12.2010, p. 12: Regulation (EU) 1094/2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), OJ L 331, 15.12.2010, p. 48; Regulation (EU) 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority), OJ L 331, 15.12.2010, p. 84.
4 EBA (2013), Warning to consumers on virtual currencies, 12 December
5 ESAs (2018), ESAs warn consumers of risks in buying virtual currencies, 12 February
6 ESMA (2021), ESMA sees high risks for investors in non-regulated crypto-assets, 17 March.
7 Proposal for a regulation of the European Parliament and of the Council on Markets in Crypto-assets, and amending Directive (EU) 2019/1937, COM/2020/593, 24/09/2020.
9 Source: Coinmarketcap.com, data as of 3 March 2022