Warning shots from regulators are precipitating the recent crash in cryptocurrencies

Warning shots from regulators are precipitating the recent crash in cryptocurrencies

The interest in Cryptocurrency has risen globally making it by far the most sought after investable asset in the world. From Bitcoin to Dogecoin, retail, institutional and even government vehicles have taken a stake in one cryptocurrency or the other.

Whilst the original creators of cryptocurrency meant for it to replace fiat money and go mainstream, people prefer to use it as a wealth creation asset. This has increased the demand for this new asset class driving its valuation multifold since late 2020.

This, of course, has got naysayers raging about how the huge bubble is about to burst and that in the no distant future, people will lose their money. Whilst this has been the rhetoric over the years for those against cryptocurrency, popular coins like Bitcoin, Ether, and Doge continue to hit multiple highs.

However, there are new warnings signs, not from your regular naysayers or those who prefer fundamentally driven investments but from those you should actually be listening to.

The warning statements from banking regulators have spooked the market as investors ponder whether regulators are seeing something otherwise hidden.

But what exactly have they said that is sending jitters down the market? We dug through some of their statements and these are the notable ones.

Just recently, the Governor of the Bank of England Andrew Bailey warned investors against investing in cryptocurrency going as far as telling them that they will lose all their money.

“I’m going to say this very bluntly again..Buy them (cryptocurrency) only if you’re prepared to lose all your money. They have no intrinsic value. That doesn’t mean to say people don’t put value on them, because they can have extrinsic value. But they have no intrinsic value.”

The U.K.’s Financial Conduct Authority also weighed in dishing out even harsher criticism about investing in cryptocurrencies.

“The FCA is aware that some firms are offering investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns. If consumers invest in these types of product, they should be prepared to lose all their money. Investing in cryptoassets, or investments and lending linked to them generally involves taking very high risks with investors’ money.”

The financial services watchdog said in January. “If consumers invest in these types of product, they should be prepared to lose all their money.”

Last week, the US Securities and Exchange Commission issued a warning to investors against the listing of Bitcoin Cryptos by mutual funds as ETFs. According to SEC, a bitcoin futures market has a potential for fraud or manipulation.

The Division of Investment Management (“IM”) staff strongly encourages any investor interested in investing in a mutual fund with exposure to the Bitcoin futures market, as discussed below, to carefully consider the risk disclosure of the fund, the investor’s own risk tolerance, and the possibility, as with all investing, of investor loss.[1] Among other things, investors should understand that Bitcoin, including gaining exposure through the Bitcoin futures market, is a highly speculative investment. As such, investors should consider the volatility of Bitcoin and the Bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying Bitcoin market. As with any fund investment, investors should focus on the level of risk they are taking on, and the level of risk they are comfortable taking on, prior to making an investment.

Yesterday, the trio of the Chinese authorities, China Internet Finance Association, China Banking Association and China Payment Clearing Association issued a press statement also warning investors against holding cryptocurrency assets. Here is an excerpts:

“Virtual currency has no real value support, price is very easy to be manipulated, related speculative trading activities have false asset risk, business failure risk, investment speculation risk and other multiple risks. From the existing judicial practice in China, virtual currency trading contract is not protected by law, the consequences of investment transactions and the resulting losses by the relevant parties bear. The vast number of consumers should enhance risk awareness, establish a correct investment philosophy, do not participate in virtual currency trading speculation activities, beware of personal property and rights and interests damage. We should cherish personal bank accounts and not use them for activities such as recharging and withdrawing virtual currency accounts, purchasing and selling related transaction top-up codes, and transferring related transaction funds to prevent illegal use and disclosure of personal information.”

As usual, when a crash occurs, retail investors are typically the ones who lose money. Don’t be caught up in the web of losers.

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