Beware of ‘fake’ money

Take care with cryptocurrencies, says Paul Lewis – the risks are high

Published: July 29, 2021 at 3:44 pm

Digital cryptocurrencies have been much in the news, as regulators around the world try to control the activities of exchanges where people can buy and sell them. But because these “virtual” currencies, such as Bitcoin, do not exist in a physical form and are not run by governments, the regulators have very little power to do so.

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Britain’s own Financial Conduct Authority last month banned just one firm, Binance Markets Ltd, from undertaking any regulated activity in the UK – though the FCA’s real target was its international parent company, whose boss says it has no headquarters. Its website allows people almost anywhere in the world to buy and sell cryptocurrencies and high-risk investments in them called derivatives. These are basically gambles on the future price of a currency.

Derivatives trading in crypto assets is banned in the UK for nonprofessional investors. But the FCA is powerless to stop us buying them
through the Binance website. All it could do was issue a consumer warning that the firm isn’t authorised or regulated in the UK and people who lose money can’t get any compensation.

Barclays and Santander took more effective action. The week after the FCA issued its warning, both banks told their customers they couldn’t use their debit or credit cards to buy any products from Binance. Barclays said this was to “help keep your money safe”. Other banks may follow. (Binance responded: “It’s disappointing to learn that some partners are taking unilateral action to stop servicing Binance users based on what appears to be an inaccurate understanding of events”.)

If you like a gamble – and can afford to lose all the money – then cryptocurrency may be a suitable thing to buy and then try to sell. But it’s not an investment, and there’s a real risk of scams. Always use a reputable exchange (only six are registered here – search “financial services register cryptoassets”), never buy derivatives and check every aspect of the deal first.

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