Article by Phil
Good question and one that I’ve been asked recently. The answer will depend on how much you know about cryptocurrency and how much risk you are prepared to take, because there is still very little understanding about this market.
As a fully authorised and regulated firm of Independent Financial Advisers, we can’t actually provide you with any advice on cryptocurrencies and there ae a few reasons for that, which you might want to take into consideration before making any decisions.
One simple reason is – that the cryptocurrency market is unregulated.
Financial Advisors, by contrast, are regulated by the Financial Conduct Authority (FCA) and we can only provide advice on regulated areas of investments. These regulations lay down a detailed series of rules about how we can operate and how we must Treat Clients Fairly, have Professional indemnity insurance, comply with relevant law in relation to Money Laundering, Data Protection, handling Client Money, deal with Complaints etc, the list goes on and on. These rules are designed to protect consumers as much as possible. In addition, financial protection also provided to consumers through the Financial Services Compensation Scheme and there is Financial Ombudsman Scheme in place to deal with complaints.
In an unregulated market none of these consumer protection measures exist. There are no rules and controls, which means that anyone can “sell” cryptocurrency. So, you should bear that in mind and ask yourself, who is this company offering to sell me cryptocurrency? Who’s behind the company? What happens to my money? How do I get my money back? What happens if I’m not given my money back? Etc.
You might also want to consider how some of the major institutions are treating cryptocurrency. For example, many Banks, including Lloyds, Citigroup, Bank of America and JP Morgan, have recently put measures in place to prevent consumers from using credit cards to buy cryptocurrency. That’s because credit cards offer protection to consumers in terms of what they buy, and the Banks have decided that they can’t take the risk of offering any protection to consumers who buy cryptocurrency, probably because of the risks of the unregulated market. In any event, no Financial Adviser would ever recommend that someone borrowed money to buy investments, it makes no sense. Even Facebook have taken the decision to ban any advertising for cryptocurrency, probably for fear of being associated with the market in case it collapses. Especially, since the value of Bitcoin has halved in the period November 17 to the end of January 18.
There are however calls for cryptocurrency to become regulated by government policy as reported in the Financial Times, in which case things might change.
So, before you do potentially invest your hard-earned money into cryptocurrency, please do consider these risks and always remember the old maxim, whether looking at cryptocurrency, or anything else for that matter……. If it looks too good to be true, it usually is.
(Update 18/3/19) The lastest update on cryptocurrency from the FCA is that they don’t believe that the market will do any harm to consumers. This is based on their latest market research which shows that less than 3% of those surveyed had ever bought cryptocurrency and that 73% had never even heard of it. They also found that the average investment being made was less than £200. The FCA are continuing with their overall assessment of whether parts of the market need to be regulated.
