Cryptocurrency Risk Assessment
Please read the following risk warnings carefully before using cryptocurrencies.
The trading of cryptocurrencies entails certain risks. This document provides you with information about some of these risks, but cannot predict all of the risks which may arise nor can it describe how such risks relate to your personal circumstances. If you are in any doubt about whether cryptocurrencies are right for you, you may wish to seek guidance from a professional adviser.
You should carefully assess whether your financial situation and tolerance for risk is suitable for any form of exposure to cryptocurrencies.
Cryptocurrencies are unregulated.
- Since the trading of cryptocurrencies are not subject to regulation, cryptocurrencies are not governed by any specific UK or European regulatory framework. This means that, when using cryptocurrencies, you will not benefit from the protections available to customers receiving regulated services.
- Given the unregulated nature of cryptocurrencies, customers are not covered by the Financial Services Compensation Scheme (FSCS)
Trading in cryptocurrencies carries special risks.
- Cryptocurrencies also carry special risks not generally shared with official currencies or goods or commodities in a market. Unlike most currencies, which are backed by governments or other legal entities, or by commodities such as gold or silver, cryptocurrency is a unique medium of exchange, in that there is no central bank that can take corrective measures to protect the value of cryptocurrency in a crisis.
- Instead, cryptocurrencies are an as-yet autonomous and largely unregulated worldwide system of currency. Traders of such currencies put their trust in a digital, decentralised and partially anonymous system that relies on peer-to-peer networking and cryptography to maintain its integrity.
The value of cryptocurrencies is highly volatile.
- The market for cryptocurrencies is still relatively new and uncertain. The price of cryptocurrencies can rapidly increase or decrease at any time and may even fall to zero. The risk of loss in trading or holding an interest in cryptocurrencies can be substantial and can result in the loss of the entire value of your cryptocurrency.
- The cryptocurrency market is highly susceptible to market manipulation and other misuse for illegal activities. The market is likely to be adversely affected if law enforcement agencies investigate any allegedly illegal activities on the Cryptocurrency Exchange or any other cryptocurrency platform.
- More generally, cryptocurrencies are susceptible to bubbles or loss of confidence (irrational or otherwise), which could collapse demand relative to supply. For example, confidence might collapse in any given cryptocurrency because of unexpected changes imposed by the software developers or others, a government crackdown, the creation of superior competing alternative currencies, or a deflationary or inflationary spiral. Confidence might also collapse because of technical problems: if the anonymity of the system is compromised, if money is lost or stolen, or if hackers or governments are able to prevent any transactions from settling.
Cryptocurrency Exchanges are vulnerable to cyber attacks.
- Cryptocurrency exchanges are entirely digital and, as with any virtual system, are at risk from hackers, malware and operational glitches. Even though Cryptocurrency Exchanges take various steps to preserve the security of their platforms, cryptocurrency which is held in wallets provided by such exchanges remain vulnerable to hacking.
- If a thief gains access to one or more cryptocurrencies (i.e. by stealing the private encryption key to the Cryptocurrency Exchange wallets), he/she could transfer the stolen assets to another account. This is particularly problematic since all cryptocurrency transactions are permanent and irreversible.
- Accordingly, a hack is likely to lead to substantial depletion of the cryptocurrency held on your behalf. Whilst the Cryptocurrency Exchange may be willing to compensate users for any such loss, they are not obliged to do so. A serious hack could also have the effect of putting a Cryptocurrency Exchange into insolvency.
The legal status of cryptocurrency is uncertain and constantly evolving.
- Given that the market for cryptocurrencies is relatively new, the legal nature of cryptocurrency is – in most jurisdictions – yet to be determined by statute, regulation or case law. In the absence of such authority, it is not clear how a regulator or court may treat interests or rights arising trading in cryptocurrencies.
- It is possible that a national or supranational regulator may take unilateral action to legislate the cryptocurrency market in a manner which prevents or encumbers the proper operation of the market in your jurisdiction. This may impact whether we can offer cryptocurrencies to you.
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