EU regulators: Crypto trading ‘not suited’ for the average consumer

Purchasing crypto assets is an unsuitable investment for the average consumer, EU financial regulators have warned.

The European Supervisory Authorities consisting of the EBA, ESMA, and EIOPA (collectively the ESAs), released a public statement warning of a ‘highly risky and speculative’ aspect when it comes to crypto assets.

Based on previous observations, the regulatory bodies advise consumers to be wary of what is described as ‘misleading advertisements’ seen on communication channels, including social media posts and promotions made by people with a large social following, promising lucrative wins in a short period of time.

Inherited risks, say the ESAs, are difficult to tackle due to the crypto-related services and activities being outside of the regulated space which implements the EU financial services rules. That’s why people who are interested in engaging with crypto assets should do so with a high level of understanding achieved after a thorough research, the ESAs advice. Otherwise, people risk losing money they may not afford to lose.

Some of the other drawbacks listed in the official EU document include sudden and extreme price movements, niche products difficult to grasp from the mainstream user, market manipulation, and operational risks such as hackers.

Back in September 2020, the European Commission brought forward a legislative proposal that outlines the region’s potential for crypto regulations. The framework suggests that supervision of crypto issuers and crypto service providers is needed to protect customers and the overall integrity of the financial system.

But until the proposal is approved and applied, the ESAs suggest that EU consumers should tread carefully when dealing with crypto assets due to the current absence of any safeguards. 

A new legislative strategy to digital currency is something that has been replicated from various markets, including the US – where the Biden administration recently signed a cryptocurrency order. 

The order urges the Federal Reserve to explore how detrimental or beneficial cryptocurrencies are for the US economy, and whether the creation of a government-supported ‘digital dollar’ is feasible.

Expert Analysis: Trading with crypto assets involves the movement of a valued digital object from one holder to another, utilising distributed ledger technology to purchase and sell the rights to ownership. 

However, with crypto popularity growing and eventually reaching the mainstream consumer, the lack of regulation has led to the sector being widely criticised by legislative bodies and lawmakers.