Like its UK counterpart, New Zealand’s Financial Market Authority (FMA) has called its citizens’ attention to the inherent risks involved in crypto investments. The regulator issued the warning on the heels of the recent volatility witnessed in the price of Bitcoin and other digital currencies.
High volatility and a sudden fall in price prompted the warning
The financial watchdog advised its people to be cautious of the digital asset’s huge risk and volatility following the recent massive drop in Bitcoin’s price from its record high of $45,000 to $32,000 in just 3 days. The agency asked investors to prepare for the worst and be ready to lose all their hard-earned money should the crypto asset move against them.
The statement, reported by NZ Herald, one of the country’s local newspapers, quoted the FMA spokesman expressing concerns raised by the New Zealand government about the unusual peaks and troughs that have characterized the crypto market. Furthermore, he reminded local investors that the regulation of cryptocurrencies is not domiciled in New Zealand and does not fall within the country’s jurisdiction. Hence, they should beware of “scammers and hackers” that are bent on defrauding unsuspecting investors of their hard-earned money, the official added.
Meanwhile, its UK counterpart, the Financial Conduct Authority (FCA), had earlier issued similar warnings to its citizens against investing in certain digital currencies. However, the UK’s financial regulator has further strengthened its grip on crypto transactions in the country. It has promised to provide additional security for investors and register all entities engaging in cryptocurrencies in the country by July 2021.
FMA highlights Precautions to take
New Zealand’s FMA advised the citizens to take certain precautions if they must participate in cryptocurrency investments. First, the agency warned investors to beware of some crypto exchanges that promise innocent citizens of mouthwatering returns to defraud them of their money. Moreover, the spokesman advised investors to stay away from unregulated foreign crypto exchanges, especially those with no known address in New Zealand.
Besides, the official advised intending investors to check if the exchange holds the individual investor’s New Zealand dollars in a trust account. Lastly, investors should ensure that any exchange they are transacting business with is registered In the Financial Service Providers Register to qualify for dispute resolution when the need arises.
The FMA added that crypto investments are not guaranteed; hence they have no insurance against the high risk.
The local newspaper reported what is popularly known as”Cryptopia’s heist”– an unfortunate incident in 2019 when Crytopia’s server was hacked and led to the loss of over 9% of the business entity. The fear raised by New Zealand’s regulator can be justified. This is due to Bitcoin’s loss of over 20% of its value in just three days– a condition referred to as a bear market in the financial ecosystem.
On Friday, Bitcoin hit its record high of $42,000 but dropped to $31,000 in just three days. The FMA is the government agency saddled to regulate the financial system and supervise all operations involving market participants in the finance sector and exchanges. It also sets and implements legislation relating to the financial markets.