Yahoo Finance FCA issues fresh warning on 'pump and dump' crypto scams
The UK's financial regulator has issued a fresh warning about investing in cryptocurrencies, as tokens continue to become more mainstream.
Charles Randell, chair of the Financial Conduct Authority (FCA) and PSR, reiterated the regulator's line in a speech to the Cambridge International Symposium on Economic Crime that consumers investing in tokens should "be prepared to lose all [their] money."
Randell explained that there are no assets underpinning the price of even popular speculative digital tokens such as Bitcoin (BTC-USD).
"These tokens have only been around for a few years, so we haven’t seen what will happen over a full financial cycle. We simply don’t know when or how this story will end, but — as with any new speculation — it may not end well," he said.
"At the FCA we have repeatedly warned about the risks of holding speculative tokens. To be clear: these tokens are not regulated by the FCA. They are not covered by the Financial Services Compensation Scheme. If you buy them, you should be prepared to lose all your money."
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He also warned that influencers are routinely paid by scammers to help them "pump and dump" new tokens on the back of pure speculation, citing a recent promotion by Kim Kardashian to 250 million instagram followers.
"The watchdog is clearly horrified at the lack of controls implemented by major social media platforms and has urged them to crackdown on posts which aren’t clearly identified as promotions," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
"It reckons given the seriousness of the situation legislation forcing them to do so should be the solution, highlighting that the current Online Harms bill just won’t go far enough."
An estimated 2.3 million Britons currently hold this type of token. 14% of them also use credit to purchase them, thereby increasing the exposure to loss.
And 12% — around a quarter of a million people — seem to think that they will be protected by the FCA or the Financial Services Compensation Scheme if they go wrong.
"They won’t," said Randell.
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A Treasury consultation on the UK approach to cryptoassets and stablecoins closed earlier this year, and the FCA is working closely with the Treasury and Bank of England as part of the Cryptoassets Taskforce.
The speech comes following a record-breaking month for crypto flows in August. Last week, Bitcoin also breached $50,000 for the second time in two weeks, extending a rally.
Today, the largest token was trading at $51,605 by lunchtime in London, up 3% from the previous session.
The cryptocurrency global market cap currently stands at $2.35trn, according to CoinMarketCap.com.
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