Risk disclosure

Can you lose all the money you put into crypto?#

Yes. EU financial regulators warn that consumers face “the very real possibility of losing all their invested money” if they buy crypto-assets ^[1]. The US SEC’s investor education office puts the practical rule this way: “The only money you should put at risk with any speculative investment is money you can afford to lose entirely” ^[2].

How volatile are crypto prices?#

Very. The European Supervisory Authorities list among the specific risks that “prices can fall and rise quickly over short periods”, and describe many crypto-assets as subject to “sudden and extreme price movements” ^[1]. The SEC’s alert says investments in crypto asset securities “can be exceptionally volatile and speculative” ^[2]. Our guide to crypto volatility and risk shows how volatility is measured and why it is so high.

Are you protected if something goes wrong?#

Often not. The ESAs warn that crypto-assets and related products and services “typically fall outside existing protection under current EU financial services rules”, and that you are “unlikely to have any rights to protection or compensation if things go wrong” ^[1]. In the United States, the SEC’s alert notes that bank deposits are insured by the FDIC up to a defined limit and that investors holding registered securities with registered broker-dealers generally benefit from SIPC protections, then adds: “There are no such protections for accounts that you place with crypto asset entities” ^[2].

What if the platform holding your crypto fails?#

The SEC’s alert lists “the potential for the company holding your crypto assets to fail or go bankrupt” among the risks, and notes that some crypto asset entities have suspended customers’ ability to withdraw and entered bankruptcy proceedings ^[2]. Our guide to custodial vs self-custody explains what changes when a company holds your keys.

Why are crypto investors targeted by scams?#

The ESAs warn that “numerous fake crypto-assets and scams exist” whose only purpose is to take your money ^[1]. The SEC’s alert says fraudsters “continue to exploit the rising popularity of crypto assets to lure retail investors into scams, often leading to devastating losses”, and that recovering money from the wrongdoers “can be nearly impossible” ^[2]. Be especially wary of promised fast or high returns, especially those “that look too good to be true” ^[1]. Our guide to common crypto scams explains how the main schemes work.

What other risks should you know about?#

• Misleading information: some crypto-assets are aggressively advertised, and social media influencers may have a financial incentive to promote them ^[1].
• Product complexity: some products that give exposure to crypto-assets have features that can increase losses when prices move against you ^[1].
• Manipulation and low liquidity: pricing is often not transparent, so you may not get a fair price, or be able to sell as quickly as you want ^[1].
• Hacks and lost keys: exchanges and wallet providers have suffered cyber-attacks, and many consumers have lost crypto-assets to hacks or by losing their private keys ^[1].

What should you ask yourself first?#

The ESAs suggest questions like these before buying crypto-assets or related products ^[1]:

• Can you afford to lose all the money you invest?
• Are you ready to take on high risks to earn the advertised returns?
• Do you understand the features of the crypto-asset or product?
• Are the firms you are dealing with reputable, and are they on any warning list kept by your national authorities?
• Can you protect the devices you use to buy, store or transfer crypto-assets, including your private keys?

This page summarises regulators’ warnings; it is not a complete list of risks. Nothing on TokenTrail is a recommendation to buy, sell or hold any crypto-asset.

Sources#