EU Regulators Warns Consumers of Increased Risk in Cryptocurrencies

Three regulators in the European Union have warned consumers in the digital currency ecosystem to be prepared to lose all of their funds while trading the nascent asset class. 

As reported by Reuters, the three watchdogs, including the European Banking Authority (EBA), European Securities and Markets Authority (ESMA), and European Insurance and Occupational Pensions Authority (EIOPA) said in a joint statement that crypto investors have no regulatory framework that supports them in case of frauds they may experience in the ecosystem.

“Consumers face the very real possibility of losing all their invested money if they buy these assets,” the three EU authorities said in a statement.

EU regulators are known to historically drive oversight in the growing crypto world, especially as it relates to mining. This time around, the regulators are concerned about the growing list of cryptocurrencies around today which numbers more than 17,000 including the duo of Bitcoin (BTC), and Ethereum (ETH). The regulator’s concerns are not necessarily about the high number of digital currencies to choose from but in the fact that most of these consumers are not aware of the inherent risks in this industry.

“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,” the statement said.

EU Regulators on DeFi and NFTs

The regulator’s warnings are largely encompassing, with a stern jab to Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs) as well.

“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 decentralized finance (DeFi) applications, that claim to generate high and/or fast returns,” the joint warning added. “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 realizing the high risks involved.”

Beyond the EU, regulators around the world have been so skeptical of the growth of digital currencies, and many including the People’s Bank of China (PBoC) have proscribed all activities involving crypto from the country, an extreme the EU is unlikely to come to terms with.