Dutch regulator warns against ‘risky’ investments in digital currency

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The Dutch financial markets regulator has warned retail investors against investing more than they can afford to lose in digital currencies, which it has described as a risky asset. Noting that its authority over the industry is limited, the regulator told investors that digital currencies are difficult to understand and prone to deception.

The Dutch Securities and Markets Authority, known locally as Autoriteit Financiële Markten (AFM), has issued warnings against digital currency investments since 2017, at the height of the ICO bubble.

His last warning revealed that around 1.2 million Dutch investors now own digital currencies. Two-thirds of these investors invested less than € 2,500 ($ 2,830) in digital assets, with half investing less than $ 550. According to the AFM, this indicates that most investors are aware of the risks involved in investing in the emerging asset class and are only taking their chances.

However, there are over 100,000 investors who have bet on digital currencies, and any sudden market movement can wipe out their entire investment portfolio, AFM said, citing a study it conducted. with the French market research giant Ipsos.

According to the watchdog, the collapse in value is the biggest risk facing digital currencies. With their prices quite volatile and the industry largely unregulated in most countries, digital currencies can experience violent price swings which can have detrimental effects on retail traders.

Digital currencies are also difficult to understand and prone to deception, the AFM added.

“Value is primarily based on speculation and as a rule there is no underlying valuation. Prices can therefore fluctuate greatly, ”he said. This risk is reflected in other products dealing with this asset class, such as exchange-traded funds (ETFs), “which are sufficiently complex in themselves”.

The challenge for retail investors is compounded by the failure of financial watchdogs to protect the industry, AFM continued. That will change soon once Crypto Asset Markets (MICA) legislation comes into force in Europe. Yet so far “there is no protection for consumers through regulation or supervision,” the watchdog said.

He concluded: “The AFM advises against putting money into cryptos that are needed in the short or longer term. Although the AFM cannot oversee crypto trading, it regularly monitors developments in the crypto market, as with this type of research.

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