What is not guaranteed
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 7 min
In short
Crypto assets carry no principal guarantee. They are outside deposit insurance, there is no assurance that assets held at an exchange come back in full if it fails, and nothing guarantees any price. Confirm these three points before deciding whether to start.
Key points
- No principal guarantee — you can lose everything you paid
- Outside deposit insurance; there is no scheme that repays a fixed amount on failure
- If an exchange fails, the assets you left there may not come back
- Nothing anywhere guarantees that a price holds at any level
Definition
The things neither the law nor any contract promises in relation to crypto assets and their custody: that your principal survives, that you are repaid on a failure, or that a price holds.
First, your principal is not guaranteed. A bank deposit does not shrink in nominal terms. A crypto asset is exposed to price movement from the moment you buy, and a fall reduces what you hold by exactly that much. There is no regulatory floor on the decline, and assets have been delisted and left effectively worthless. 'You can lose everything you paid' is a description of a possible outcome, not a figure of speech.
Second, deposit insurance does not apply. When a bank fails, the Deposit Insurance Corporation protects deposits up to a set amount. Crypto has no equivalent scheme. Nor should you assume that yen held in an exchange account attracts the same protection as a bank deposit — check what the provider actually says.
Third, nothing guarantees that assets come back if the exchange fails. Registered providers in Japan must hold customer assets separately from their own, but that does not mean full and prompt return in an insolvency. There are past cases where assets held at a failed operator were locked up for years and only partly recovered. With an unregistered offshore operator, the realistic assumption is that they do not come back at all.
Fourth, no price is guaranteed. A fixed supply cap, the entry of large companies, a well-known figure announcing a holding — none of these guarantee anything about the future price. Treat anyone offering 'capital protected', 'certain to rise', or a stated monthly return as either wrong about the facts or running a fraud.
Watch out for
- · A crypto pitch promising capital protection should be treated as fraud until proven otherwise
- · Assets left on an exchange mean you are carrying that operator's credit risk
- · Segregation of customer assets is not a promise of full repayment in an insolvency
Frequently asked questions
Is it safer to leave assets on an exchange or to hold them myself?
Each carries a different risk. On an exchange you are exposed to its failure or a withdrawal freeze; holding it yourself puts the entire consequence of a lost or stolen key on you. Neither is simply the safe option.