Crypto-assets risk disclosures
There are several risks associated with crypto-assets and crypto-assets trading. By accessing our website and mobile application, and using our Services (as defined in the Terms of Use), you hereby represent and warrant that you have read the following Crypto-assets Risk Disclosures.
1. Unique features of crypto-assets
Crypto-assets are not legal tender in most jurisdictions, including Gibraltar, the United Kingdom and the United States, and have no intrinsic value. The price of crypto-assets is based on the agreement of the parties to a transaction, which may or may not be based on the market value of the crypto-asset at the time of the transaction.
2. Price volatility
The price of a crypto-asset is based on the perceived value of the crypto-asset and subject to changes in sentiment, which make these products highly volatile. Certain crypto-assets have experienced daily price volatility of more than 20%. Some crypto-assets, including so-called stablecoins, have lost their value almost entirely in the short period of time and never bounced back. Therefore, you may lose a large amount or even all of the money invested. The extreme price movements also mean that many crypto-assets are unsuitable as a store of value, and as a means of exchange or payment.
3. Market manipulation, valuation and liquidity
Crypto-assets can be traded through privately negotiated transactions and through numerous crypto-asset exchanges and intermediaries around the world, each with its own pricing mechanism and/or order book. The lack of a centralized pricing source poses a variety of valuation challenges. The holding of certain crypto-assets is highly concentrated, which may also impact prices or liquidity. You may therefore not get a fair price or treatment when buying or selling crypto-assets, or not be able to sell your crypto-assets as quickly as you would want in the absence of a potential buyer. In addition, the dispersed liquidity may pose challenges for market participants trying to exit a position, particularly during periods of stress. Cases of market manipulation have been reported on multiple occasions.
4. Cybersecurity
The cybersecurity risks of crypto-assets and related “wallets” or spot exchanges include hacking vulnerabilities and a risk that publicly distributed ledgers may not be immutable. A cybersecurity event could result in a substantial, immediate and irreversible loss for market participants that trade crypto-assets. Even a minor cybersecurity event in a crypto-asset is likely to result in downward price pressure on that product and potentially other crypto-assets.
5. Opaque spot market
Crypto-asset balances are generally maintained as an address on the blockchain and are accessed through private keys, which may be held by a market participant or a custodian. Although crypto-asset transactions are typically publicly available on a blockchain or distributed ledger, the public address does not identify the controller, owner or holder of the private key. Unlike bank and brokerage accounts, crypto-asset exchanges and custodians that hold crypto-assets do not always identify the owner. The opaque underlying or spot market poses asset verification challenges for market participants, regulators and auditors and gives rise to an increased risk of manipulation and fraud, including the potential for Ponzi schemes, bucket shops and pump and dump schemes, which may undermine market confidence in a crypto-asset and negatively impact its price.
6. Crypto-asset exchanges, intermediaries and custodians
Crypto-asset exchanges, as well as other intermediaries, custodians and vendors used to facilitate crypto-asset transactions, are relatively new and largely unregulated in most jurisdictions. The opaque underlying spot market and lack of regulatory oversight creates a risk that a crypto-asset exchange may not hold sufficient crypto-assets and funds to satisfy its obligations and that such deficiency may not be easily identified or discovered. In addition, many crypto-asset exchanges have experienced significant outages, downtime and transaction processing delays, flash crashes, and may have a higher level of operational risk than regulated futures or securities exchanges.
It may be difficult or even impossible to identify and/or locate the issuer of crypto-asset, the trading platform, wallet provider or intermediary, especially in a cross-border situation where it may also be difficult to determine which laws may be applicable. Thus, if a holder has a claim it might be difficult to sue the issuer or the wallet provider and enforce a title.
7. Regulatory landscape
The majority of crypto-assets and the selling of products or services in relation to crypto-assets are unregulated. In these cases you will not benefit from the rights and protections available to consumers for regulated financial services, such as complaints or recourse mechanisms.
Crypto-assets currently face an uncertain regulatory landscape in many jurisdictions. In addition, many crypto-asset derivatives are regulated by the provisions of national and supra-national (i.e. EU) securities legislation; moreover, some state securities regulators have cautioned that many initial coin offerings (ICOs) are likely to fall within the definition of a security and subject to their respective securities laws. One or more jurisdictions may, in the future, adopt laws, regulations or directives that affect crypto-asset networks and their users. Such laws, regulations or directives may impact the price of crypto-assets and their acceptance by users, merchants and service providers.
8. Technology
The relatively new and rapidly evolving technology underlying crypto-assets introduces unique risks. For example, a unique private key is required to access, use or transfer a crypto-asset on a blockchain or distributed ledger. The loss, theft or destruction of a private key may result in an irreversible loss of crypto-asset associated with this private key. The ability to participate in forks could also have implications for investors. For example, a market participant holding a crypto-asset position through a crypto-asset exchange may be adversely impacted if the exchange does not allow its customers to participate in a fork that creates a new product.
9. Transaction fees
Many crypto-assets allow market participants to offer miners (i.e., parties that process transactions and record them on a blockchain or distributed ledger) a fee. While not mandatory, a fee is generally necessary to ensure that a transaction is promptly recorded on a blockchain or distributed ledger. The amounts of these fees are subject to market forces and it is possible that the fees could increase substantially during a period of stress. In addition, crypto-asset exchanges, wallet providers and other custodians may charge high fees relative to custodians in many other financial markets.
10. Risk of partial or total loss of the invested amount
Investments in crypto-assets are not regulated in most countries and therefore you are unlikely to be protected if something goes wrong. Also, the risks associated with the investment may not be clearly stated in the documentation published by the issuer of the crypto-asset.
11. Risk of insufficient information disclosure
Information regarding any specific crypto-asset may be missing, inaccurate, incomplete and unclear with respect to the project and its risks. Documents may be highly technical and require sophisticated knowledge to understand the characteristics of the crypto-asset and/or the project.
12. Project risk
In many projects, the value and stability of the crypto-asset largely depends on the skill and diligence of the project team behind the crypto-asset or the ICO. The project underlying an ICO might not be realised, which would ultimately make the crypto-asset worthless.
13. Misleading information
Some crypto-assets and related products are aggressively advertised to the public, using marketing material and other information that may be unclear, incomplete, inaccurate or even purposefully misleading. For instance, advertisements via social media may be very short, with a focus on the potential gains but not the high risks involved. You should also beware of social media ‘influencers’ who typically have a financial incentive to market certain crypto-assets and related products and services and therefore may be biased in the communications they issue.
14. Fraud and malicious activities
Numerous fake crypto-assets and scams exist and you should be aware that their sole purpose is to deprive you of your money using different techniques, for example phishing.
15. Product complexity
Some products providing exposure to crypto-assets are very complex, sometimes with features that can increase the magnitude of losses in case of adverse price movements. These products, given their complexity, are not suitable for many consumers.