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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
What are the key risks?
1. You could lose all the money you invest
The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets
The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoasset you purchase due to the risks such as cyber-attacks, financial crime, and firm failure
2. You should not expect to be protected if something goes wrong
The Financial Services Compensation Scheme (FSCS) doesn't protect this type of investment because it's not a 'specified investment' under the UK regulatory regime – in other words, this type of investment isn't recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker here
Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance, and cryptoassets are not currently covered by the FOS. If you have a complaint against an FCA regulated firm, FOS may be able to consider it — but this does not extend to complaints relating to cryptoasset investments. Learn more about FOS protection here
3. You may not be able to sell your investment when you want to
There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time
Operational failings such as technology outages, cyber-attacks and commingling of funds could cause unwanted delay, and you may be unable to sell your cryptoassets at the time you want
4. Cryptoasset investment can be complex
Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment
You should do your own research before investing. If something sounds too good to be true, it probably is
5. Don’t put all your eggs in one basket
Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well
A good rule of thumb is not to invest more than 10% of your money in high-risk investments
Tip:
Asset category overviews
Cryptoassets vary widely in how they're designed, what they're used for, and the risks they carry. The summaries below outline the main risks linked to the broad categories of cryptoassets you may be able to buy, sell, or trade through MoonPay. They're general in nature and don't describe the risks of any single asset.
Stablecoins
Cryptoassets designed to hold a steady value by tracking a fiat currency or other reserve assets.
Counterparty risk: the issuer or a third party may fail or be unable to honour the peg
Redemption risk: you may not be able to redeem the asset for its reference value during periods of market stress
Reserve risk: the assets backing the coin may fall in value or prove insufficient
Currency risk: where the peg is to a foreign currency, exchange-rate movements affect what it's worth to you
Mechanism risk: coins that rely on algorithms rather than reserves can lose their peg suddenly and severely
Utility and DeFi tokens
Tokens that give access to a product, network, or decentralised finance protocol.
Smart contract risk: flaws in the underlying code can be exploited and lead to a total loss
Regulatory risk: changing rules may affect whether a token can be offered or what it's worth
Project failure: teams may abandon a project or withdraw funds, leaving the token worthless
Dependency risk: tokens that rely on external data feeds or other protocols can fail if those systems are manipulated or break
Complexity: the way these tokens work can be hard to understand, making the risks difficult to assess
Wrapped tokens
Tokens that represent another cryptoasset so it can be used on a different blockchain.
Smart contract risk: vulnerabilities in the wrapping contract can result in loss of funds
Backing risk: the process that keeps the wrapped token matched to the underlying asset may fail
Custody risk: the party holding the underlying asset may become insolvent or be compromised
Bridge risk: technical problems may stop you moving the asset between blockchains
Price divergence: the wrapped token's price may drift away from the asset it represents
Meme coins
Tokens whose value is driven mainly by community interest, trends, and online sentiment rather than any underlying use.
Extreme volatility: prices can swing sharply on social media activity or celebrity endorsements
Little or no utility: many have no practical use or intrinsic value
Manipulation: they're vulnerable to pump-and-dump schemes that inflate prices artificially
Limited transparency: information about the team and their intentions is often scarce
Emotional investing: hype can drive impulsive decisions that increase losses
Staked assets
Cryptoassets locked on a blockchain to help secure the network in exchange for rewards.
Penalty risk: the network may penalise a validator, reducing the assets you've staked
Lock-up risk: staked assets can be tied up for a period and may not be quick to access or sell
Variable rewards: reward rates are set by the protocol and can change or stop
Protocol risk: network changes may introduce new vulnerabilities or unexpected outcomes
Smart contract risk: flaws in staking contracts can lead to loss of staked funds or rewards