What are cryptocurrencies?
Cryptocurrencies are digital assets traded solely online usually using a form of distributed ledger technology (DLT) to store the data, without the need for a third party such as a bank. Typically, traders of cryptocurrencies will have an account with an online crypto exchange which will facilitate the transactions and conversions using wallets under their control.
Why investing in cryptocurrencies is high risk
If you are considering investing in crypto, you should understand the risks before doing so and be prepared to lose the money you have invested.
Unregulated
Crypto is largely unregulated in the UK so you are unlikely to be covered by the Financial Services Compensation Scheme (FSCS). Wallet transactions are not regulated in the UK and exchanges are therefore under no obligation to support you in the event something goes wrong. However, the marketing of crypto is regulated and you should expect to see many risk warnings before investing. If you cannot see any risk warnings before you invest, the company is not following the required rules and it is likely to be a scam.
Volatility
Crypto prices can vary wildly day to day, much more so than traditional investments such as shares and bonds. If you are considering investing, you should be prepared to lose your money.
Appealing to fraudsters and scammers
Appealing to fraudsters and scammers – Fraudsters are very active in crypto markets and scams are on the rise. Fraudsters will use cryptocurrency transactions because they are harder to trace and it is easy for them to gain immediate access to the stolen funds. If something sounds too good to be true, then it probably is.
Cyberattacks
Crypto is vulnerable to cyberattacks. Hackers have successfully stolen from crypto exchanges and it isn’t always possible for exchanges to recover the money.
A recent example saw hackers steal $1.5bn of digital currency from cryptocurrency firm, Bybit.
Prone to scam coins
Some cryptocurrencies are created with the intention of tricking people who buy them. These can be subject to ‘rug pull’ scams which involve the creator of the coin selling a huge portion once others have started to invest, which crashes the price of the coin and makes it unsellable for other holders.
Complexity
Cryptocurrency and wallet-to-wallet transactions are complicated. Many people do not fully understand the mechanisms of cryptocurrency trading, so it is harder to make appropriately informed choices. Please ensure you fully understand the risks before investing.
How to stay safe
We are unable to advise you on whether to invest in cryptocurrencies, but if you are intending to do so, please consider the following steps to stay safe:
- You should be prepared to lose all your money. Only invest what you can afford to lose.
- Ensure you are in full control of your crypto exchange account and that nobody else helped with setting it up or knows the login credentials.
- Only use a crypto exchange that is registered with the FCA. Any professional financial advisor you are using should also be FCA registered, and the list can be found here: https://www.fca.org.uk/firms/financial-services-register
- Fraudsters will approach you posing as financial advisors and citing favourable investment opportunities. Always be sure to conduct your own research on the cryptocurrencies and platforms you are using. If you are offered any ‘free’ gifts or other incentives to invest, do not proceed.
The Weatherbys stance on cryptocurrencies
Weatherbys Bank does not allow debit card transactions to merchants which may offer crypto-related products or services.
Weatherbys Bank does allow faster payments, CHAPS or BACS payments to be sent to these types of firms, however. So, if you request a payment of this nature through your relationship team, extra security checks may be required before we release any funds.