In the past two days, crypto investors witnessed some unexpected digital asset value drops. Not many foresaw the falling of those currencies, but experts predicted institutional investors turning bearish. On Sunday, Bitcoin lost some steam and dropped to $38,000 before the Monday fall made it decline further.
Unlike traditional assets, digital assets are more complicated and affected by multiple factors being a hurdle to their stability. The UK Financial Conduct Authority(FCA) addressed some issues concerning crypto investments. The Tuesday slurp necessitated the body’s warning to oblivious investors. Some people, especially newbies in the sector, don’t understand how cryptocurrencies work and how volatile they are.
FCA warns crypto investors against investment
Crypto analysts speak about risks associated with digital assets making their unpredictability known. The UK body understands the growing crypto industry in Britain, leading it to explain to crypto investors the volatility of crypto investments. FCA opined that the risk is higher than the average investment, making them unsuitable for short-term investors. With the new information, interested parties should expect the worst with the blockchain-based asset.
The authority said that people with the asset class could lose their profits and capital at any point in time, so they should put it at the back of their mind that despite the asset’s high returns, it could have losses also. The body pointed out that cryptocurrency investments do not have insurance nor issued by legal authorities like the country’s Financial Service Compensation scheme.
Most institutional buyers planned a long-term investment in Bitcoin; last year, a new wave of investors joined the industry. The large amounts of money worked with some other factors to cause the climbing of the digital asset. Not many investments give high returns like cryptos; their instability helps them to rise or fall sporadically.
Bitcoin added $20,000 to its value within a month, showing how fast the asset amasses value and equally loses it. The deep pocket investors are mainly in for the profits, and not many are enthusiasts or interested in keeping the assets for long, so when the $40,000 mark reached, they withdrew their investments for profit-taking.
Some risks highlighted by FCA
The body voiced out some controversies about the asset and made notes on some problems the investment gives. FCA revealed that the investment does not have a regulatory framework; it could attract criminals to use it for money laundering. Also, concerning consumer protection, investors bear all the risks related to their investments and gains. No authority helps reduce investor’s losses; those who invest must prepare their minds for a possible loss.
Still listing out the problems, the authority spoke on price volatility and opined that asset values are not stable. Although digital assets are used to store value, their volatility might cause a loss of value in the long run, according to the UK body. The complexity of cryptos also stands as a huge problem for investors. FCA explained that asset complexity could make it hard for investors to understand and make the right investment decisions.