No Safety Net From Crypto Collapses, German Regulator Warns

The financial regulatory authority for Germany, BaFin, has toughened warnings about consumers potentially losing all their crypto investments, unlike holdings with regulated banks.

AccessTimeIconAug 23, 2022 at 9:02 a.m. UTC
Updated May 11, 2023 at 6:24 p.m. UTC

Investing in cryptocurrencies could mean you lose all your money because there's no state-sponsored protection, Germany's financial regulator BaFin said Monday, in a toughening of previous warnings to retail investors.

In Germany, whether you get your money back from failed crypto projects depends on the details of insolvency law and exact conditions of the service, BaFin said, in an amendment to a February warning on crypto investments.

Recent collapses such as crypto lender Celsius Network have led to messy bankruptcy cases, where ex-customers must fight for their money back as part of lengthy legal proceedings.

If trading platforms or wallet providers turn south or go bust, "there is no protection covering customer losses, such as deposit guarantee schemes or investor compensation schemes," the statement from BaFin says. "Such systems do not exist for crypto assets."

In contrast, under European Union (EU) law, holdings with conventional banks are usually insured up to the value of 100,000 euros ($99,000), a move designed to protect consumers and prevent market panic turning into a bank run.

The EU recently struck a political deal on the Markets in Crypto Assets Regulation (MiCA) intended to regulate crypto and protect consumers, but it's not in effect yet. In the meantime, the bloc's financial watchdogs have warned potential buyers to be wary of get-rich-quick schemes that seem too good to be true.


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Jack Schickler is a CoinDesk reporter focused on crypto regulations, based in Brussels, Belgium. He doesn’t own any crypto.

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