On 22 March 2022, The Central Bank of Ireland ("CBI"), the Irish financial regulator, issued a fresh warning (via a press release on their website) on the risks of investing in crypto assets, as part of a European-wide campaign by the European Supervisory Authorities ("the Press Release"). CBI has previously issued such warnings to consumers, the most recent of which issued in April 2021.
Cryptocurrencies – what are they?
Cryptocurrencies are a form of digital money. They allow payments to be made electronically and function in a similar way to standard currencies that use physical cash. However, unlike standard currencies that can be exchanged physically using notes and coins, cryptocurrencies are only exchanged electronically using lines of computer code. Examples of well-known cryptocurrencies are bitcoin and ethereum, but a wide range of others also exist.
Another big difference between cryptocurrencies and paper currencies is how they are structured. Official currencies are centralised and guaranteed by a central bank that controls their supply. For example, the European Central Bank guarantees the euro and controls its supply in the euro area. Cryptocurrencies meanwhile are unregulated and decentralised. This means that no central bank guarantees them or controls their supply.
In its Press Release, CBI emphasised that crypto assets are highly risky and speculative, and may not be suitable for retail customers. In particular, CBI warned that people need to be alert to the risks of misleading advertisements, particularly on social media, where influencers are being paid to advertise crypto assets. Furthermore, CBI warned consumers that if issues arise in relation to their crypto asset investment, they may not have the same protections as a regulated product.
In relation to CBI's warning, Derville Rowland, Director General Financial Conduct commented as follows:
“In Ireland and across the EU we are seeing increasing levels of advertising and aggressive promotion of crypto asset investments. While people may be attracted to these investments by the high returns advertised, the reality is that they carry significant risk. Before you buy crypto assets, you need to think about whether you can afford to lose all the money you invest. Do the promised fast or high returns seem too good to be true?"
The Press Release can be accessed here. The Central Bank has also published a helpful explainer for consumers on cryptocurrencies which can be accessed here.
As part of the Eurosystem, CBI is investigating the potential issuance of a central bank digital currency – a digital euro. Any digital euro would be complementary to physical euro banknotes and coins rather than a substitute for them. It would be fundamentally different from a cryptocurrency because it would be backed by the European Central Bank. As such, people using a digital euro could have the same level of confidence as with cash, since they would be both backed by a central bank.
"For more on this topic, see our previous blog The Cryptic Cryptocurrency – the Central Bank of Ireland remains sceptical to retail crypto investing"
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