Consumers risk losing all their money invested in crypto-assets and could fall prey to scams, European Union securities, banking and insurance watchdogs said in a joint statement (pdf) .

“Consumers face the very real possibility of losing all of their invested money if they purchase these assets. Consumers should be alert to the risks of misleading advertising, including via social media and influencers. promises of quick or high returns, especially those that sound too good to be true,” the regulators said in the statement.

The statement made by the European Supervisory Authorities (EBA, ESMA and EIOPA – the ESAs) marks a rise in direct consumer warnings about cryptocurrencies by EU authorities, explicitly stating that consumers have no no protection or recourse to compensation within the existing EU financial framework. service law.

Consumers buy crypto without being aware of the risks

Regulators are growing increasingly concerned that more and more consumers are buying the thousands of different cryptocurrencies, including bitcoin (BTC) and ether (ETH), which account for 60% of the market, without being fully aware of the risks, regulators said.

Specifically, regulators list seven types of risks that consumers may encounter in the crypto market. Consumers risk extreme price movements, misleading information, lack of protection, product complexity, fraud and malicious activity, market manipulation, lack of price transparency and low liquidity, and finally hacks, operational risks and security issues.

According to the press release, the warning is based on Article 9(3) of the founding regulation of the ESAs. It follows earlier warnings about the risks of buying and holding crypto assets. Regulators define crypto-assets as “a digital representation of value or rights that can be transferred and stored electronically, using distributed ledger technology or similar technology.”

“ESA notes 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, e.g. non-fungible tokens (NFTs), derivatives with crypto-assets as underlyings, unit-linked life insurance policies with crypto-assets as underlying and decentralized finance (DeFi) applications, which claim generate high and/or fast returns,” the statement read.

No mention of whether there is a request for protection

Furthermore, “the ESAs are concerned that an increasing number of consumers are buying these assets in the hope that they will get a good return without realizing the high risks involved”.

“Consumers should be aware of the risks of misleading advertising, including via social media and influencers. Consumers should be particularly wary of promises of quick or high returns, especially those that sound too good to be true,” the statement said.

Regulators do not, however, cite an increase in the number of consumers complaining about the results of their cryptocurrency transactions; nor if there are reports of consumers having problems when investing in crypto assets, or even if there is demand from consumers asking regulators to protect them.

Regulators are taking the opportunity, however, to add a final line to the statement on the environmental impact of certain crypto assets.

“Consumers should also be aware that the energy consumption to produce some crypto assets is high and the environmental impact this has,” the statement concludes.