EU Regulatory Authorities Issue Crypto Warning

A group of European Union financial regulators has warned consumers against the risky nature of cryptocurrencies, adding that they could lose all their money if they make crypto investments.

Retail Consumers Could Lose Their Money in Crypto Investments

The warning published on Thursday (March 17, 2022), was issued by the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA), which together form the European Supervisory Authorities (ESAs).

According to the ESAs, more consumers were showing an increased interest in crypto and other related products such as non-fungible tokens (NFTs). For the group, there are concerns that consumers are engaging in the burgeoning sector without being aware of the risks involved.

The regulatory bodies stated that cryptocurrencies are not suitable for investment, exchange, or as a payment method for retail investors. In addition, the ESAs warned consumers to be mindful of adverts promoting crypto assets, and also be cautious about cryptocurrency investment schemes that promise hyperbolic returns.

The financial regulators said that retail consumers could lose their money if they buy cryptocurrency, which is a speculative and risky asset, adding that there may be no compensation if investors fall victims to frauds, scams, or cyber attacks. An excerpt from the press release said:

“The ESAs also warn consumers that they should be aware of the lack of recourse or protection available to them, as crypto-assets and related products and services typically fall outside existing protection under current EU financial services rules.”

The ESAs made similar warnings to consumers in 2018 and March 2021. Meanwhile, the press release stated that the proposal for crypto regulations in the European Union (the Markets in Crypto Assets framework – MiCA – introduced September 2020) was still undergoing a co-legislative process.

EU Reiterates Concerns About Crypto Mining’s Energy Consumption

Apart from warning consumers about the risks associated with crypto investment, the ESAs also touched on the energy consumption of cryptocurrency mining activities. According to the group, consumers should be wary of the environmental impact of mining operations.

Earlier in March, there were reports that the European Parliament Committee was set to vote on the MiCA draft on March 14, which contained a provision introduced later into the proposal that touched on proof-of-work (PoW) cryptocurrencies.

PoW is a consensus mechanism underlying cryptocurrencies like BTC and ETH. There have been criticisms from governments and environmentalists about the energy-intensive nature of PoW, compared to Proof-of-Stake (PoS).

An excerpt from the document reads:

“Crypto assets shall be subject to minimum environmental sustainability standards with respect to their consensus mechanism used for validating transactions, before being issued, offered or admitted to trading in the Union.”

However, the reintroduction of the proposed PoW ban was met with vehement opposition from the cryptocurrency community. Crypto hardware wallet Ledger issued a statement saying that such a measure “would have serious consequences for Europe.”

The co-founder and CEO of Circle, Jeremy Allaire, said it was extraordinarily concerning that such a proposal came that far. Michael Saylor, CEO of MicroStrategy and a Bitcoin proponent, asserted via a tweet that “banning digital property would be a trillion-dollar mistake.”

However, the community heaved a sigh of relief after the EU parliamentary committee voted against a de facto PoW ban on Monday, March 14, 2022, which would eliminate such a provision from the MiCA framework.

Leave a Reply

Your email address will not be published.

Related Articles
Read More

Similarities (And Differences) Between Ethereum And Cardano

Cardano and Ethereum are cryptos that also operate as programmable ecosystems. They provide the grounds for developers to build other digital assets and applications on their network. Apart from this, it is important to consider the technological differences between the two platforms. Let's critically examine...
Read More

3 DeFi Platforms That Could Take Off by 2022

DeFi makes financial transactions cheaper and more cost-efficient because it removes the need for intermediaries during transactions. Because of increasing demand, new DeFi projects have sprouted in 2021. Below are the three DeFi platforms that are expected to take off by 2022. Aave In the...