After the downfall of the crypto exchange FTX, more than a million people and companies experienced a loss, per bankruptcy documents.
Some reports say a hacker has infiltrated FTX, stealing millions of dollars of crypto from the company. So, it raises concerns from people who invested in the business.
Crypto assets are primarily unregulated in the UK. Furthermore, experts and financial specialists warn that there’s not much protection for consumers.
Even with experts warning the public about crypto investments’ risk, approximately 6.7 million individuals in the UK possess or have already purchased crypto assets. That means the number is close to one in every ten people.
The Financial Conduct Authority, a financial watchdog, cautioned in September that FTX might be offering financial services or products in the UK without proper authorization.
“You are unlikely to get your money back if things go wrong,” it said bluntly.
The watchdog currently handles a page with the FTX liquidation. It signals that those who’ve put their money into FTX have limited options.
Disappearing Crypto
In the case of FTX, there is a liquidation process. It will split the firm’s remains among those it owes money.
University of Liverpool ‘s Associate Professor in Financial Technology Gavin Brown referenced the latest report, which found that “42% of exchanges which failed simply disappeared without a trace.”
However, bankruptcy doesn’t offer any comfort.
“In the event of exchange failure, or even bankruptcy, it is the investors who are on the hook for losses,” Prof Brown said.
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He, alongside other experts, cautioned that in most cases, small investors get placed at the back of the priority line when the remains are split up among creditors. Furthermore, they don’t think creditors will juice any more money.
“The unfortunate news is that the money’s all gone. It’s just not there anymore. Investors should expect pennies on the dollar,” David Gerard, crypto blogger and author, said.
Gerard said there are “real liabilities but imaginary assets.” Moreover, a considerable amount of the assets are in exchangers’ own tokens like FTX’s FTT token, to which “they’ve assigned a spurious value in billions.”
No More Than a Few Options
According to the FCA, individuals concerned about their finances should approach a government-supported organization, Moneyhelper. However, Moneyhelper is an advice service. It can only provide recommendations on ways to push through when your savings disappear.
In a few conventional investments, it’s probable to gain compensation if an organization falls down through the Financial Services Compensation Scheme (FSCS). Examples of that are a bank or building society.
However, FSCS said it doesn’t cover crypto assets due to its unregulated financial product nature. They said all they can provide is a caution for consumers about the risk. Furthermore, they could offer tools to inspect if a scheme safeguards their investment.
The organization added that consumers asked about cryptocurrency every week. It’s either through its customer service department, social media, or scanning for data on its website.
According to it, “crypto” is one of the most searched words on its website.
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Photo: CNN Espanol
