When the crypto exchange FTX went bankrupt, it left more than a million people and companies stranded with no way to withdraw their funds.
The news of a possible hacker infiltration into FTX has raised concerns among those who invested in their business.It’s a buyer beware market, with crypto assets primarily unregulated and lacking any protection for consumers.
More than six million people in the UK have invested into crypto or own digital assets. This means that there is a 1 out 10 individuals ratio, despite experts warning of its risks.
The Financial Conduct Authority has sounded the alarm on FTX, warning that they might be providing financial services or products in Great Britain without proper authorization.
“You are unlikely to get your money back if things go wrong,” it said bluntly.
The watchdog handled a recent page with the FTX liquidation. On this particular instance, it’s important to note that those who’ve put their money into this doomed fund have limited options going forward.
In the case of FTX, there is a process to split up their remains and distribute them among those who are owed money by it.
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.
He, alongside other experts, cautioned that in most cases, small investors get placed at the back of the priority line. This is in case 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.”
Close to No Options
As per 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 possible 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.