Last updated: October 7, 2026
Estimated reading time: 2 min
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 here.
- The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm. 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. Learn more here.
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.
Asset category overviews
Cryptoassets differ in design, purpose, legal treatment and risk exposure. The summaries below outline the main risks of each category you can hold, swap or stake through Gem Wallet.
Stablecoins
Stablecoins are cryptoassets whose value is pegged to a fiat currency or other reserve assets.
- Counterparty risk: The issuer may become insolvent or fail to maintain its reserves.
- Depeg risk: The price may move away from its peg, especially during market stress.
- Redemption risk: The stablecoin may not be redeemable at its stated value during periods of volatility.
- Collateral risk: The assets backing the stablecoin could lose value.
- Freeze risk: Some issuers can freeze tokens held at a specific address.
- Algorithm risk: Algorithmic stability mechanisms can fail under stress, leading to rapid devaluation or collapse.
- FX risk: Holders whose home currency differs from the peg are exposed to exchange rate movements.
DeFi tokens
DeFi tokens are cryptoassets linked to decentralised finance protocols built on blockchain technology.
- Smart contract risk: Coding errors can be exploited, causing significant losses.
- Regulatory risk: New regulations may affect the legality or value of a protocol.
- Rug pulls: Developers may abandon a project and withdraw its funds.
- Oracle risk: Manipulated external price data can trigger unintended outcomes.
- Governance risk: Holders of large token amounts can push through decisions that harm other users.
- Complexity: The mechanisms and risks can be difficult to understand fully.
Wrapped tokens
Wrapped tokens are tokenised representations of other cryptoassets, created for use on another blockchain.
- Smart contract risk: Contract vulnerabilities could be exploited, leading to a loss of funds.
- Custodial risk: A third party holding the underlying assets may become insolvent or be hacked.
- Collateral risk: The mechanism that keeps the token backed 1:1 may fail.
- Bridging risk: Technical issues may delay or block transfers between blockchains.
- Price divergence: The price of a wrapped token may differ from the value of the underlying asset.
Meme coins
Meme coins are cryptoassets whose value is driven mainly by community interest and online trends.
- Volatility risk: Prices can swing sharply and unpredictably on social media activity and endorsements.
- Lack of utility: Most meme coins have no intrinsic value or practical use.
- Market manipulation: Meme coins are exposed to pump-and-dump schemes and concentrated holdings.
- Liquidity risk: Thin trading can make a token hard to sell without a large price drop.
- Lack of transparency: Information about the team and its goals is often limited or anonymous.
Staked assets
Staked assets are cryptoassets locked in a blockchain protocol to help secure the network in exchange for rewards.
- Slashing risk: The network may penalise a validator for errors or downtime, reducing staked assets.
- Lock-up risk: Staked assets can be locked for an unbonding period and cannot be sold during it.
- Rewards are not guaranteed: Reward rates are set by each protocol and change over time.
- Validator risk: A validator you delegate to may perform poorly or stop operating.
- Protocol risk: Network upgrades may introduce new vulnerabilities or unforeseen outcomes.
Self-custodial wallets
A self-custodial wallet gives you sole control of your private keys and your Secret Phrase.
- Loss of access: If you lose your 12-word Secret Phrase, nobody can restore access to your wallet or recover your funds.
- Irreversible transactions: Blockchain transactions cannot be cancelled or reversed once confirmed. Funds sent to a wrong address or network are usually lost.
- Scams and phishing: Anyone who obtains your Secret Phrase can take your funds. Fake websites, apps and support agents are common.
- Third-party services: Swaps, purchases with fiat and staking rely on independent third-party providers and protocols, each with its own terms and risks.