UK’s financial regulator said on January 11 that those who had invested in cryptocurrencies could lose all of their money as the volatile price of Bitcoin plummeted from an all-time high.
The price dropped almost $42,000.
Over the past year, Bitcoin surprised the market after it rose by more than 300%. It has captured the attention of both the public and institutional investors because of its promising performance.
However, the cryptocurrency is very volatile; from January 8 to January 11, the price dropped to 15% from a record high of $41,800 to $34,645.
Warnings Against Cryptocurrency
Many people thought that cryptocurrency was a fad, but there is no denying that it had attracted the attention of financial regulators worldwide. They worry, though, those amateur investors could be tempted to invest a lot of money only for cryptocurrencies such as Bitcoin to collapse in value, just like what happened back in 2018.
Britain’s Financial Conduct Authority had released a statement about the dilemma “If consumers invest in these types of product, they should be prepared to lose all their money.”
The watchdog also released a statement and had stated that it was worried by some financial firms who are currently offering investments in or products that are linked to cryptocurrencies as they seek to capitalize on the rally immediately.
The Watchdog stated, “Significant price volatility in crypto assets, combined with the inherent difficulties of valuing crypto assets reliably, places consumers at a high risk of losses.” It added that ” “the complexity of some products and services relating to crypto-assets can make it hard for consumers to understand the risks.”
“There is no guarantee that crypto-assets can be converted back into cash. Converting a crypto asset back to cash depends on demand and supply existing in the market.”
The memories of the collapse in Bitcoin’s price back in 2017 all up to early 2019 when it dropped from almost $20,000 to below $4,000 are weighing on financial regulators.
The FCA also stressed out that cryptocurrencies like Bitcoin are very unregulated. It stated that investors would be unlikely to have recourse as compensation or complaints if something goes wrong.
Regulators are also attempting to tighten the rules about cryptocurrencies to keep investors safe. Since January 10, the FCA has required that all UK cryptocurrency firms register as part of the new regulations developed to tackle money laundering and ensure that those cases are minimized.
The US Financial Crimes Enforcement Network back in December 2019 floated the idea that companies could be required to collect information on the holders of cryptocurrency wallets.
Jack Dorsey, Twitter’s CEO, who also runs the payments company Square, is among those who oppose the idea. He suggested that the unregulated nature of cryptocurrencies is one reason people are attracted to them.
Dorsey wrote, “The burdensome information collection and reporting requirements deprive U.S. companies like Square of the chance to compete on a level playing field to enable cryptocurrency as a tool of economic empowerment.”