More and more consumers are regularly exposed to promotion campaigns for “easy” investments in virtual assets by user-friendly exchange platforms. Such advertisements are done via social media platforms or other digital communication channels and highlight the possibility of earning high returns.

Virtual assets have historically shown a high risk, as well as a speculative nature and are consequently not a suitable investment for every type of investor.

Consumers that are interested in investing in virtual assets should therefore carefully read the CSSF warning on virtual assets  and/or initial coin offerings (ICOs) and tokens.

Consumers should also read the European Supervisory Authorities (EBA, ESMA and EIOPA – the ESAs) consumer warning, in which they remind consumers that some crypto-assets are highly risky and speculative and that consumers must be alert to the high risks of buying and/or holding these instruments, including the possibility of losing all their money.

Despite the numerous risks expressed in said warnings (pertaining notably to extreme volatility and bubble risk, low liquidity, absence of protection, lack of exit options, lack of price transparency, misleading information, unsuitability of virtual assets for most purposes, operational disruptions, counterparty, custody, fraud and manipulation risks), the general public’s appetite is increasing for this type of investment. Faced with this phenomenon, the legislator has recognised the need to regulate a certain number of risks brought about by investments in virtual assets, such as the AML/CTF risk, by including virtual asset service providers in existing AML/CTF laws and by developing a new legislation that aims at providing a legal framework for virtual assets that to this day did not fall under any regulation, i.e. the upcoming Markets in Crypto-assets Regulation (MiCA).

The present guidance is published, with the aim of helping those consumers, who despite the risks inherent to virtual assets are willing to invest in them, by outlining some minimum steps to be performed before investing. Nevertheless, the present guidance may not be interpreted as investment recommendation or investor protection measure in any way, nor can the following minimum steps be considered by potential investors as an absolute protection against fraud.

Minimum steps to perform before inveesting in virtual assets

Educate yourself

As a general principle you should never invest in any products or activities that you do not fully understand. This is even more true for virtual assets, which are a very diverse asset class and which have unique features, functions and risks (e.g. the absence of a central authority to issue said virtual assets, the use of cryptography and the DLT technology…) that distinguish them from traditional investment products.

Virtual assets are deprived of a detailed legal framework and consumer protection regime, contrary to financial instruments (whether the latter exist on the blockchain or not). As a result, consumers must take their own responsibility and gather relevant information in order to educate themselves before making any investment decisions in this context instead of blindly following trends.