Must know. . . Is my crypto in danger?

The spectacular implosion of Sam Bankman-Fried The crypto empire has rocked the digital asset world, already reeling after a summer of uncertainty sparked by the collapse of linked tokens Terra and Luna.

As the saga continues to unfold, the exact extent of the damage done to the unregulated world of speculative crypto remains unclear, but UK savers who put their money into the asset class risk facing a road strewn with pitfalls in terms of the value of their investments. Those with funds held by minted exchanges may not be able to withdraw them at all.

I am a UK crypto holder and have read about contagion fears. Are my assets at risk?
Bankman-Fried’s sprawling group has focused on now-bankrupt crypto exchange FTX, whose collapse its new boss John Ray III has described as the worst case of corporate failure he’s seen in the past. of his career spanning more than 40 years.

Retail investors who used FTX for trading and as a repository for their crypto are unlikely to recover their funds from the defunct exchange. But the problem is more widespread. Other exchanges, including BlockFi – which was heavily exposed to FTX – have suspended withdrawals in recent days. Genesis Trading, which allows customers to lend their coins, also announced it was stopping withdrawals from its lending unit earlier this week.

Even if your crypto is on an exchange that allows you to withdraw it, don’t expect a bargain price. Bitcoin has fallen below $17,000 from around $60,000 a year ago. Coins with more direct exposure to Bankman-Fried’s business, such as Solana or FTX’s own FTX cryptocurrency, suffered even steeper falls.

Can I do anything to protect my money?
Changpeng Zhao, head of former FTX rival Binance, is among those who have called on users to “self-custody” i.e. keep the private keys to their crypto on a wallet personal digital (while promoting official Binance crypto wallet). This avoids the risk of holding them on a centralized exchange.

While it may be useful in the future, those whose money is stuck on exchanges that have lifted the drawbridge – permanently or otherwise – have no real recourse.

What are UK regulators doing to help?
Regulation is often treated with derision in the crypto world. Bankman-Fried himself said in an interview with Vox that regulators “are not protecting customers at all.” FTX nevertheless offered industry standards last month.

Those who have lost money will find little solace in the libertarian ideals of crypto, as the asset class is largely unregulated in the UK. The Financial Conduct Authority, the city’s watchdog, has a register of regulated companies, but this only covers anti-money laundering policies. There’s no protection from the Financial Services Compensation Scheme – which helps customers of bankrupt banks or building societies – so if the coin you bought or the company that held it blows up, there’s no recourse .

The bill on financial services and marketscurrently under consideration in the House of Commons, will give the FCA greater regulatory oversight of the crypto industry, but this is only expected to be passed sometime next year.

If I decide to sell now and take my profits, will I be liable for tax?
The latest guidelines government is that you may have to pay capital gains tax when you sell assets if your gains exceed your tax allowance, depending on the gain for each transaction you have made. Certain eligible costs may be deducted, including certain transaction costs and advertising costs for a buyer or seller.

On a practical note, major UK banks have started to take a tougher stance on the payments their customers make on cryptocurrency exchanges due to high fraud rates. The TSB has banned them since last year, while Santander and Virgin Money announced they were toughening their approach this month.

No lender has yet taken the step of preventing customers from cashing out their crypto, but those who see an opportunity to buy more speculative coins when the price is low may find their bank unwilling to help.

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