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Central Bank warns crypto is ‘high risk’

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The Central Bank of Cyprus issued a warning to people involved in cryptocurrencies or other virtual currencies, urging them to consider the high degree of risks involved.

It reminded people that some crypto assets, including cryptocurrencies/virtual currencies, are “extremely dangerous and speculative”, quoting European supervisory authorities (ESAs) such as the European Banking Authority and the European Securities and Markets Authority.

A common warning issued by the ESAs in February 2018 focused on cryptocurrencies / virtual currencies and the high risks emanating from buying and/or owning these instruments, including the possibility of losing money.

“Cryptocurrencies / virtual currencies are a digital representation of value that is not issued or guaranteed by either a central bank or a public authority.

“It is not necessarily attached to a legally established currency and does not possess a legal status of currency or money,” said a CBC statement.

It added: “Due to the lack of relevant regulatory framework in the EU, consumers who buy and/or hold cryptocurrencies do not benefit from the guarantees and safeguards associated with regulated financial services.”

“Purchasers of crypto assets are exposed to a number of risks including extreme price volatility, absence of legal protection due to lack of regulation, lack of exit options from such transactions, lack of price transparency, operational disruptions exhibited in some virtual currency exchange platforms and incomplete information made available to consumers wishing to buy virtual currencies.”

CBC noted that in September 2020, the European Commission presented a legislative proposal for a Regulation on crypto-asset markets.

“The proposal is still subject to the outcome of the legislative process and, as a result, consumers do not currently benefit from any of the safeguards provided for in this proposal, as it has not yet been enacted into EU law,” the CBC warned.