Is Bitcoin Covered by the Financial Services Compensation Scheme?

Lost money to a crypto or trading scam? Read this first:

If your losses exceed £3,000 (in the UK) or $10,000 worldwide The Crypto Adviser can offer advice on recovering your funds. 

>> GET IN TOUCH

The Financial Services Compensation Scheme (FSCS) pays compensation of up to £85,000 if an authorised financial product fails.

This covers products like bank and building society accounts, insurance companies and investment firms.

It also covers temporary high balances of up to £1million if deposited in a qualifying institution.

But when it comes to Bitcoi (BTC)n, Litecoin (LTC) and Ethereum (ETH), and other types of cryptocurrency, crypto coins/tokens or cryptoassets, no cover is offered.

Bitcoin and cryptocurrency aren’t regulated

Cryptocurrencies aren’t currently regulated by either the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA).

The financial authorities view cryptocurrencies as incredibly high-risk investments, that are volatile, intangible and unregulated.

As such, any exchange tokens, such as Bitcoin, are not regulated and therefore not covered by FSCS compensation.

The same goes for utility tokens, which facilitate access to a service or product. However, if the specific utility token was designated as e-money, that it might fall under the scheme.

Security tokens can also be an exception.

According the FSCS website, security token can have features to general investments, even if their value comes from an underlying cryptoasset.

The FSCS say that a Contract for Difference (CFD) is one example of this.

Under these circumstances your investment is likely to be protected, but not guaranteed. You should always double check before making an investment.

Understand the risks before investing

As with any investment decision you make, doing your own due diligence is vital.

There are a growing number of financial products available in the cryptosphere that are run by reputable companies, including these exchanges and savings and investment accounts.

Many people are actively seeking alternatives to traditional investing and the potential for a high rate of return on cryptocurrency is appealing.

You need to understand the risks before investing in cryptocurrency and accept that you may lose money.

If you do decide to invest in Bitcoin or other coins, ensure that you only spend what you can afford to lose and that your holding is just part of a diversified portfolio.