CySEC Chair Warns against Crypto Investment Risks, Endorses MiCA

The rising popularity of cryptocurrencies and the associated risks with such investments have alarmed the Cyprus Securities and Exchange Commission (CySEC). The Cypriot regulator’s Chair, Dr George Theocharides, warned crypto investors on Tuesday against “liquidity risk, volatility risk, cyber-risks, [and] fraud.”

“Investor interest in crypto-assets across the globe is on the rise and their inherent risks, along with a lack of proper information and the online hype, can lead to material losses for investors,” Dr Theocharides wrote.

He stressed the need for education of investors on the various risks involved in investments in crypto assets.

“The rapid growth of the crypto-asset markets and the eco-systems that support them pose new challenges and risks for all regulating bodies across the world. While technological innovation offers many promising possibilities – such as improved access to financial services – the immaturity of the ecosystem and the assets themselves, could inhibit the cultivation of trust in the sector,” Dr. Theocharides added.

Paving the Regulatory Path

CySEC is one of the favorite regulators for financial services companies that are targeting the larger EU traders. Its favorable licensing requirements compared to other European counterparts allow brokers to make the Mediterranean island their base.

The Cypriot regulator, which oversees several FX and CFDs brokers, also lured crypto companies by issuing industry-specific registration directives in mid-2021. Moreover, the move succeeded as major crypto firms like Crypto.com and FTX headed to the island.

Now, Dr Theocharides is worried about several risks in the crypto industry. On top of that, he alarmed investors with aggressive marketing campaigns for several crypto projects that are even receiving paid endorsements from celebrities.

“Many crypto-assets have no tangible value – contrary to traditional securities, such as stocks or bonds, resulting in their value and price depending exclusively on supply and demand which in most crypto-assets can be highly speculative. This may lead to high volatility of prices and investors suffering large losses,” he said.

Furthermore, he highlighted the 'urgent need' for crypto regulations and counted the benefits of the proposed EU Regulation on Markets in Crypto-Assets (MiCA), which is aimed to bring crypto-assets, crypto-assets issuers, and crypto-asset service providers under a common regulatory framework.

“CySEC is determined to play an important part in improving investor education on risks of crypto-asset investment, and it will remain vigilant of the growth of the sector, in anticipation of the passing of MiCA that would allow for its comprehensive supervision,” said the CySEC Chair.