Regulators Warn Consumers About the Risks Associated With Crypto Assets

The FCA estimates that 2.3 million people in the UK hold crypto-assets. The investors in crypto are mostly tracking Bitcoins, which advanced by over 300 per cent in 2020 – that caught the attention of many HNW individuals planning to invest in such assets by the end of 2022. 

The reports find that 47 per cent of the investors consider their stake in such options as a gamble, but now the number of those investors considering it safe has increased, and only 38 per cent believe it to be a gamble. 

The number of people who view crypto-assets as acceptable has increased in the last few years, whilst the regulators continue to stress the speculative nature of the investment that is more like a bet because the value of bitcoins continues to be volatile. The digital currencies shot up in value and became a $2.5 trillion market at the start of the year. 

The supporters claim the alternative markets struggle to deliver higher yields in the current low-interest-rate conditions, but the bitcoins deliver attractive returns. 

However, the authorities banned the world's largest crypto exchange, Binance, from operating in the country because it failed to register with the regulators as it could not meet the money laundering requirements. 

Furthermore, the investment in such assets also raises investor protection issues because the investment is highly speculative. Therefore, the Bank of England also plans to distinguish between speculative operations in assets like bitcoins and investments like stablecoins backed by existing financial assets. Also, the users are unclear about other associated charges or the taxes on profits. 

HMRC does not consider cryptocurrencies like bitcoins to be money. Instead, they identify them as (any of the three) - exchange, utility, or security tokens. The HMRC guidelines are to gain taxes on the exchange tokens. The taxes can be calculated as capital gains tax (CGT) on the disposal of crypto assets. 

In addition, the investors may have to pay the national insurance contributions on the received assets from the employer or for mining or from airdrops. In crypto operations, the concept of domicile remains irrelevant, and it falls in their estate against the inheritance tax purpose. 

In addition, the taxation system on gains remains unclear, and one may have to seek guidance from a trusted legal /financial advisor to know more about it.

The number of people owning such assets has amplified in the year 2020. The average holding grew to 300 pounds from 260 pounds in the previous year, and the ownership is restricted to the group of professional men in the age group over 35 years. Nevertheless, the investors are positive because many feel their investment is growing, and they plan to buy more.

The regulators mention that people who risk their investment in crypto assets should be ready to lose all their money. They are concerned because unregulated agencies conduct most such operations, while only a small percentage of crypto options have a backup through stable assets. 

Further, the risks in such options are high because the data from FCA suggests that 14 per cent of buyers borrowed to invest. So, the speculative boom is noticeable in the crypto markets, sounding an alarm. 

How Does A Cryptocurrency Scam Work?

• The crypto assets frauds advertise their products on social media or other online platforms through celebrity endorsements or professional ads, and buyers invest in crypto assets or traditional currency.

• Most such scams are operated from outside the UK, but they claim they own a UK office or have a reliable UK presence with a prestigious address in the capital city. 

• The scam firms manipulate the applications used in such trades to change the rates and returns, and they scam others to buy into some non-existent crypto assets. In addition, some of these traders close their online accounts and decline to transfer the clients' funds when the client seeks to get access to the returns on investment. 

How To Identify The Scams?

• One should be aware of the online adverts posted on social media that promise to give higher returns through crypto investments or related products.

• Government agencies do not authorise some firms to sell these products. If you invest through such agencies, you will not be eligible to get compensation from the government if the investment goes wrong.

• All firms that sell such assets should be authorised, and they should also give a warning list to the clients. Although the government does not regulate crypto assets like Ether or Bitcoin, one should always research such products before considering buying them. 

• Seek information about the investment, look for the company's details in the registered firm list, and see if others have posted any concerns regarding their online offers, products or services. 

• If you suspect the firm has scammed you, contact the consumer helpline number and fill in the reporting form. 

• Also, be cautious of the phone calls or messages where the clients who have already lost money in scams are being targeted again by criminals and are asked to pay a small amount as a fee to get back the previously invested money.