A number of European Supervisory Authorities (ESAs) issued a warning to European consumers about the perils of buying virtual currencies due to rising concern that people may be unaware of the risks involved.
The ESAs comprising authorities for securities (ESMA), banking and insurance (EBA) and insurance and pensions (EIOPA) issued a pan-EU warning to consumers about the risks of buying virtual currencies such as Bitcoin, Ethereum and Ripple which are unregulated under EU law.
The warning that virtual currencies are highly risky and unregulated products and are unsuitable as investment, savings or retirement planning products came as ESAs are concerned that rising numbers of consumers are buying VCs unaware of the risks involved.
Signs of a bubble
The authorities say currencies such as Bitcoin, which are subject to extreme price volatility, are showing clear signs of a pricing bubble. Investors are at a high risk to lose their money particularly because the exchanges for digital currencies are not regulated and there isn’t the same safety net as provided to customers of retail banks for example to cover any losses.
The ESAs highlighted the recent operational problems with some exchanges where customers were unable to buy and sell when they wanted to and suffered losses as a result.
The ESAs' action comes amidst China's almost blanket ban of the virtual currencies and calls by other countries for global regulatory framework.
Ban virtual currency, choke innovation
Ripple’s chief compliance officer, Antoinette O'Gorman, added her voice to the call to build a regulatory framework now as a means to prevent further bans. O'Gorman in an op-ed likened calls to ban cryptocurrencies to similar episodes in the early days of the internet in the 1990s.
O'Gorman said, "A ban on the internet would have choked innovation and made the world less connected. Unfortunately, if the loudest naysayers of virtual currency get their way, that’s exactly what will happen."
She calls for collaborative efforts to build a regulatory framework between regulators, central banks, financial institutions and technologists as well as creating strong consumer protection measures.
"We encourage regulators to focus on how digital assets are used and the benefits they can provide to both people and businesses rather than applying inflexible, blanket regulation," O'Gorman wrote.