Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
What are the key risks?
1. You could lose all the money you invest
The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.
The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.
2. You should not expect to be protected if something goes wrong
The Financial Services Compensation Scheme (FSCS) doesn't protect this type of investment because it's not a 'specified investment' under the UK regulatory regime – in other words, this type of investment isn't recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker.
The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
3. You may not be able to sell your investment when you want to
There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time.
Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want.
4. Cryptoasset investments can be complex
Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.
You should do your own research before investing. If something sounds too good to be true, it probably is.
5. Don't put all your eggs in one basket
Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.
A good rule of thumb is not to invest more than 10% of your money in high-risk investments.
If you are interested in learning more about how to protect yourself, visit the FCA's website here.
For further information about cryptoassets, visit the FCA's website here.
As cryptocurrencies like Bitcoin, Ethereum and Litecoin go more mainstream, fintechs are offering versatile ways for you to manage, spend and earn on your cryptocurrencies. But while crypto banking products offer the potential for big rewards, they don’t provide the safety net of traditional banking. Find out if this new breed of products is worth considering.
What is crypto banking?
Cryptocurrency is digital money stored and traded on digital exchanges. Crypto banking is a term used to describe exchanges or fintechs that let you buy, sell, store and manage your cryptocurrency from a digital wallet. These services are designed to replicate the user experience of traditional or online banks.
What you can do with your cryptocurrencies beyond that depends on the platform you use and the country you’re in.
Some crypto banking services let you make payments through crypto debit cards and earn higher returns than you might find in a traditional bank.
Some global firms allow crypto to be used as collateral for loans. There are also all-in-one platforms that allow users to buy, sell and earn crypto through products like crypto-backed loans, trading accounts, savings accounts and credit cards. However, the firms we checked did not offer all these services in the UK.
2 ways to get involved in crypto banking
You can get involved in crypto banking through 2 common routes.
Owning cryptocurrency and using a crypto banking service that will lend it out to other users, earning you a return in interest.
Depositing pounds sterling into a crypto banking service and allowing it to convert your money into crypto to lend out, and pay you interest on your total balance.
Carefully read the small print of the crypto exchange you’re interested in to make sure it offers the services you’re looking for. You may be required to tie up your cryptocurrency for a specified time before you can begin using it or have to wait before you can withdraw it.
Crypto debit cards
Crypto debit cards are linked to your crypto wallet and convert your crypto coins into pounds sterling at the time of your transaction. We’ve published a full guide on crypto debit cards. There are several cards available in the UK including the following:
eToro. Available to all UK members of eToro’s Club programme, the eToro Money Card lets you make purchases using your crypto holdings. It connects to an eToro Money Account, where you can store and manage fiat and cryptocurrency funds.
Ziglu. UK-based Ziglu is a platform that enables its account holders to hold and trade cryptocurrencies and fiat currencies.
Coinbase. This is a Visa debit card funded by your Coinbase balance. Users can spend any cryptocurrency they want anywhere Visa is accepted as long as they have the virtual asset in their Coinbase balance.
Crypto credit cards
Like traditional credit cards, cryptocurrency cards offer the opportunity for you to earn rewards on purchases, often in the form of crypto. Several have launched in the US. When we checked in early 2022, we could find none available in the UK. We explain more, and feature some alternative options, in our full guide. Credit cards are regulated by the UK’s Financial Conduct Authority (FCA), so companies offering such cards would have to be authorised by the FCA first.
Other types of crypto banking products
Here are 3 other types of crypto banking products, though not all are available in the UK:
Crypto savings accounts. Crypto savings or interest accounts allow you to earn interest on your cryptocurrency by loaning your stored crypto to other people, generating returns expressed as an APY (annualised percentage yield).
Crypto loans. Loans that use your crypto holdings as collateral allow you to access the value of your crypto in a fiat currency without having to sell, triggering a tax event or missing out on future gains.
Crypto trading accounts. Many dedicated crypto exchanges allow you to trade pounds sterling for cryptocurrency or even swap one cryptocurrency for another.
Crypto banking in the UK
There are limited crypto banking products currently available in the UK. Uncertainty about UK regulation of cryptocurrencies has made crypto platforms cautious about launching consumer banking products in the UK.
Currently, the primary crypto banking product in the UK is crypto debit cards or crypto prepaid cards. There are several providers including eToro, Wirex and Coinbase that have a card available to UK users.
Finally, there are yet to be any crypto credit cards released on the UK market. However, there are reports that some platforms may expand their offerings to UK users in the future.
Custodial vs non-custodial accounts
You may come across the terms custodial and non-custodial when researching platforms, accounts or wallets.
Non-custodial wallets like Coinbase leave you in control of the private keys to your cryptocurrency. You’re the sole owner of your cryptocurrency across transactions on the platform.
Custodial accounts like Coinjar require you to hand over your private keys, trusting the platform to act as the custodian for your crypto and manage it on your behalf.
One isn’t necessarily better than the other. It comes down to your preferred level of control and how you want to secure your assets. If you’re new to crypto, you might like the idea of a platform looking out for your cryptocurrency. If you’re a veteran, you may want to retain control of the assets you’ve built.
Do crypto banking services protect your money?
Crypto companies understand the risks associated with their services and have developed a range of ways to protect your money.
Cold storage
Crypto companies typically allow you to choose between “hot” or “cold” storage of your assets. Hot storage means that your crypto is stored online, where it’s easy for you and the platform to access. Harder to access is cold storage, where your crypto is stored offline, offering stronger protection against hacking and breaches.
Third-party insurance
Crypto isn’t protected by the Financial Services Compensation Scheme (FSCS), so some crypto companies have decided to provide their own safeguards through pooled insurance and partnerships with third parties.
Bug bounties
Binance and other major platforms support “bug bounty” programmes, which invite the help of ethical hackers and cybersecurity experts to intentionally breach security protections and expose vulnerabilities – helping to strengthen protocols and stay a step ahead of bad guys trying to gain access to your virtual assets.
Is crypto banking regulated in the UK?
This depends on what’s being offered. Some types of banking and credit products (such as credit cards) are regulated, but buying and selling crypto is not – so regulation doesn’t cover everything or every company.
Crypto companies that operate banking services within the UK must be registered with the FCA for the purposes of anti-money laundering (AML) checks. This means that crypto exchanges are required to report suspicious activity and to have procedures including “know your customer” – or KYC – checks to verify you are who you say you are when you sign up.
But registering with the FCA isn’t the same as being regulated to ensure customers and their money are protected. With crypto banking services, for example, you can’t turn to the Financial Ombudsman if you have a complaint concerning crypto, and your money isn’t covered by the FSCS if the platform goes bust. You could use both of these with a fully licensed bank like NatWest or Monzo.
Services that offer a debit (prepaid) card and operate as an e-money institution have to be authorised by the FCA, and if you have a complaint that concerns pounds sterling, you can use the Financial Ombudsman – but if it’s about crypto, you can’t. Either way, your money isn’t covered by the FSCS.
Crypto and tax
You may be liable for capital gains tax (CGT) on profits from selling crypto assets if your capital gains go above the annual CGT allowance.
This means you’re expected to keep track of any profits. Crypto tax software can make it easier for you to handle taxes associated with any profits gained from cryptocurrency markets by automating the process and keeping track of trades and transactions you make. We have an expert guide on crypto and tax.
If you own enough cryptocurrency to park it in an account, you’ll be able to take advantage of high returns and rewards. But remember that crypto is a speculative, volatile investment and crypto banking lacks the safeguards you get from a mainstream bank.
Pros
Sky-high yields. Some companies advertise interest rates as high as 14.5% APY. Platforms have different requirements for these high-return deals, but many specify that you must invest in the platform’s native cryptocurrency to get the max interest.
Easy access to your assets. Crypto banking services are partnering with household names like Visa and Mastercard, making it easier for you to spend – and earn rewards on – your crypto.
Returns in stablecoin. Many crypto banking services offer products that can help you mitigate crypto volatility by investing in stablecoins – coins pegged to a “stable” fiat currency like the British pound or the US dollar. Earning interest on stablecoins may shield you from market volatility, as these types of cryptocurrencies are designed to maintain a value equal to the pegged fiat currency.
Access low-interest financing. By offering up your crypto as collateral, you can access loans at lower rates than a traditional bank’s, often without a credit check or ID – and without having to sell your crypto.
Minimal credit checks. For now, crypto banking offers an opportunity for the marginally banked and unbanked to access financing based only on the value of their crypto holdings – and not their credit score.
Cons
Offers little to no reserves. Crypto services can offer high APYs because they don’t have to keep reserves traditional banks typically need to cover the cost of loan defaults. This enables them to generate a higher return on investment – but also results in less protection if several high-stake loans fail.
Not protected by the FSCS. Unlike traditional banking, crypto banking is not covered by the Financial Services Compensation Scheme (FSCS). If a crypto banking service goes bust or gets hacked, you could lose your cryptocurrency.
You might need to give up control. A draw of cryptocurrency is that it’s controlled by whoever holds the private keys to it. Yet some crypto banking services and wallets are custodial accounts that require you to give up control and trust them with your keys.
Rates fluctuate with the market. While rates for crypto savings accounts can be high, the value of your earnings can fluctuate with the market. Sharp market movements can leave you unable to react to those changing market conditions.
Potential tax to pay. If you sell any crypto assets at a profit and go above the capital gains tax allowance, you’ll need to pay tax. If you receive crypto as income from mining or as pay from an employer, then you will be responsible for keeping records and may need to pay income tax and National Insurance contributions. HMRC might ask to see records if it does a compliance check.
Bottom line
Using a crypto banking service is riskier than using a mainstream bank, but the returns offered by platforms that hold your crypto are also bigger.
Regulators in the UK want stronger control and oversight of cryptocurrency as it becomes more mainstream. The Bank of England plans to step up talks with its international counterparts on a regulatory regime for cryptocurrency.
What is clear is that cryptocurrency isn’t a fad. We’ll keep you updated on new products as they launch – and the protections and risks that go with them.
*Cryptocurrencies aren't regulated in the UK and there's no protection from the Financial Ombudsman or the Financial Services Compensation Scheme. Your capital is at risk. Capital gains tax on profits may apply.
Cryptocurrencies are speculative and investing in them involves significant risks - they're highly volatile, vulnerable to hacking and sensitive to secondary activity. The value of investments can fall as well as rise and you may get back less than you invested. Past performance is no guarantee of future results. This content shouldn't be interpreted as a recommendation to invest. Before you invest, you should get advice and decide whether the potential return outweighs the risks. Finder, or the author, may have holdings in the cryptocurrencies discussed.
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Kate Steere is an editor at Finder, specialising in fintech, banking and cryptocurrency. She has previously written for The Motley Fool UK and Fitch Solutions, where she covered a wide range of personal finance topics and kept a close eye on market trends. Kate has a Bachelor of Arts in Modern History from the University of East Anglia. When not working, she can usually be found curled up with a good book or heading out for a run. See full bio
Kate's expertise
Kate has written 176 Finder guides across topics including:
Learn more about the Coinbase Card, including fees, limits and what to watch out for.
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