Cryptoassets Risk Overview

Last updated 15 April 2025. Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk. 

What are the key risks?

You could lose all the money you invest

• The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets. 
• The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure. 

You should not expect to be protected if something goes wrong

• The Financial Services Compensation Scheme (FSCS) doesn’t protect this type of investment because it’s not a ‘specified investment’ under the UK regulatory regime – in other words, this type of investment isn’t recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker here. 
• Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here. 

You may not be able to sell your investment when you want to

• There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time. 
• Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want. 

Cryptoasset investments can be complex

• Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.  
• You should do your own research before investing. If something sounds too good to be true, it probably is.  

Don’t put all your eggs in one basket

• Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well. 
• A good rule of thumb is not to invest more than 10% of your money in high-risk investments. 

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.

For further information about cryptoassets, visit the FCA’s website here.

Memecoins

Memecoins derive value from community interest and online trends, often without any intrinsic value or utility. 

What are the risks associated with Meme coins?

• Volatility Risk: Meme coins are prone to substantial and unpredictable price changes, often experiencing rapid fluctuations. Social media trends and celebrity endorsements can significantly influence their value, diverging from traditional investment fundamentals. 
• Lack of Utility: Meme coins can sometimes lack intrinsic value or utility, relying more on community interest, online trends, and speculative trading to determine their worth. 
• Market Manipulation: Meme coins face an elevated risk of market manipulation, including 'pump-and-dump' schemes, where prices are artificially inflated before a sudden crash. 
• Lack of Transparency: Information about meme coins, such as details about development teams, goals, and financials, is often limited. This lack of transparency poses challenges in evaluating the credibility and potential of a meme coin accurately. 
• Emotional Investing: Meme coins often evoke intense emotional reactions from investors, leading to impulsive decisions. This emotional trading activity has the potential to magnify losses in the market.  

Examples of Memecoins: DOGE, PEPE, SHIB, FLOKI, BONK, WIF 

DeFi tokens/utility tokens

Vulnerable to smart contract exploits, liquidity risks and governance manipulation.

Decentralised Finance (DeFi) tokens, such as UNI and AAVE, are linked to financial applications and protocols on decentralised blockchains.  

What are the risks associated with Defi tokens?

• Smart Contract Risk: DeFi's reliance on smart contracts exposes it to risks. Even a minor coding error or oversight could lead to the exploitation of a contract, potentially resulting in significant losses for DeFi token holders. 
• Regulatory Risk: Operating in a decentralised manner, DeFi often lacks intermediaries or financial crime controls. Regulatory bodies across jurisdictions might introduce new regulations, affecting the use, value, or legality of certain DeFi protocols or assets. 
• Rug-Pulls/Exit Scams: Some DeFi projects, initiated by anonymous or pseudonymous teams, heighten the risk of "rug pulls." In such cases, developers abandon the project, withdrawing funds and leaving investors with worthless tokens. 
• Data/Oracle Risk: DeFi protocols often rely on external data sources or ‘oracles’. Manipulation or inaccuracies in these data sources can lead to unintended financial outcomes within the protocols. 
• Protocol Complexity: The intricate nature of some DeFi protocols can pose challenges for average users to fully comprehend the mechanisms and associated risks. 
• Lack of Liquidity: Certain coins within DeFi exhibit very low liquidity, meaning slight changes in supply and demand can result in sharp price movements. 

Examples of DeFi tokens: LINK, AAVE, ONDO, CRV, 1INCH, INJ