Dutch regulator warns against ‘risky’ digital currency investments

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The Dutch financial markets regulator has warned retail investors against investing more than they can afford to lose in digital currencies, which it described as a risky asset. Noting that its authority over the industry is limited, the regulator told investors that digital currencies are difficult to understand and prone to deception.

The Netherlands Authority for the Financial Markets, known locally as Autoriteit Financiële Markten (AFM), has been issuing warnings against digital currency investments since 2017 at the height of the ICO bubble.

Its latest warning revealed that there are about 1.2 million Dutch investors who now own digital currencies. Two-thirds of these investors put less than €2500 ($2,830) into digital assets, with half investing less than $550. This, according to AFM, indicates that most investors are aware of the risks that come with investing in the emerging asset class and are just taking a chance.

However, there are over 100,000 investors who have gone all-in on digital currencies, and any sudden market movement can wipe out their entire investment portfolio, the AFM stated—citing a study it had conducted with French market research giant Ipsos.

According to the watchdog, value collapse is the biggest risk facing digital currencies. With their prices being quite volatile, and the industry being largely unregulated in most countries, digital currencies can see violent price swings that can have adverse effects for retail traders.

Digital currencies are also difficult to understand and prone to deception, the AFM added. 

“The value is mainly based on speculation and as a rule there is no underlying valuation. Prices can therefore fluctuate strongly,” it said. This risk translates into other products dealing with this asset class, such as exchange-traded funds (ETFs), “which are complex enough on their own.”

Compounding the challenge for retail investors is that financial watchdogs do not protect the industry, AFM went on. This will change soon once the Markets in Crypto Assets (MICA) legislation takes effect in Europe. Still, till then, “there is no protection at all for consumers by regulation or supervision,” the watchdog claimed.

It concluded, “The AFM advises against putting money in cryptos that is needed in the short or longer term. Although the AFM cannot supervise the trading of cryptos, it regularly monitors developments in the crypto market, such as with this type of research.”

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