Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose all the money you investThe performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure

2. You should not expect to be protected if something goes wrong

• The Financial Services Compensation Scheme (FSCS) doesn’t protect this type of investment because it’s not a ‘specified investment’ under the UK regulatory regime – in other words, this type of investment isn’t recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker here.

• The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm. Learn more about FOS protection here.

3. You may not be able to sell your investment when you want to

• There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time. 

• Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want.

4. Cryptoasset investments can be complex

• Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment. 

• You should do your own research before investing. If something sounds too good to be true, it probably is.

5. Not all cryptoassets bear the same risks

In addition to these general risks derived above, investing in certain types of cryptoassets may bear specific risks. These specific risks include but are not limited to - 

• Stablecoins:

  • The risk of depegging from the price of the fiat currency or commodity (e.g. US Dollars) the asset was intended to track in price.

  • The risk that the value of the collateral (e.g. US Dollars) declines or becomes volatile, affecting the stability of the asset.

  • The risk of centralisation or regulatory failure, causing the asset to lose its stability and even lose all its value.

• DeFi tokens:

  • The risk of the smarts contract exploitation (e.g. a minor code error or oversight) resulting in significant losses for DeFi tokens.

  • The risk of limited liquidity affecting the supply and demand for the token, and resulting in share price movements.

  • The risk of governance manipulation where regulatory changes may affect the use, value, or legality of the token.

6. Don’t put all your eggs in one basket 

• Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on anyone to do well.

• A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

Remember, not all cryptoassets are alike. Before investing, you should ensure you understand the specific risks involved. Please read our Asset Risk Summary, to get a better understanding of the key risks for the Stablecoin and DeFi tokens available on Luno customers in the UK.

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.

For further information about cryptoassets, visit the FCA’s website here.