Crypto investments not protected like bank accounts: FDIC

by Arthur · August 1, 2022

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Cryptocurrency is confusing and the prices of bitcoin and other cryptos are extremely volatile. Also, the federal government now believes it is necessary to reiterate that money invested in cryptocurrency is not protected the way cash in banks is protected.

The Federal Deposit Insurance Corporation (FDIC) issued a warning to banks on Friday to ensure that the crypto companies they work with accurately represent the risks associated with digital assets. The FDIC, which is the regulator that insures cash held in banks on behalf of consumers, is particularly concerned about the confusion that can arise when customers invest money in institutions that offer both cash deposits and crypto products.

“Inaccurate representations about deposit insurance by non-banks, including crypto companies, may confuse the non-bank’s customers and lead those customers to falsely believe that they are protected against any type of loss,” the FDIC’s advisory said.

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Is crypto protected by FDIC insurance?

The FDIC will guarantee up to $250,000 in cash deposits at thousands of banks nationwide. This means that if the bank goes under, customers are guaranteed to get their money back. This protection only applies to certain deposits such as checking accounts, savings accounts and certificates of deposit (CDs) – not investment products such as stocks or cryptocurrency.

“When you invest in stocks or crypto, you take the risk that you can lose everything,” Richard Smith, chairman and CEO of the Foundation for the Study of Cycles, a nonprofit organization that studies recurring patterns in the economy, science and art, previously told Money. “There is no one to make sure that your losses are never above a certain level.”

Crypto assets are risky

The FDIC’s broad warning followed a letter the FDIC and the Federal Reserve sent Thursday to crypto broker Voyager Digital, warning the firm to stop claiming that customers’ crypto deposits are protected by FDIC insurance — they are not.

Voyager is one of several crypto companies that were forced to suspend withdrawals and trading (preventing customers from accessing their funds) amid a massive downturn in the cryptocurrency market.

Other crypto companies have also temporarily suspended operations, and some cryptos have completely collapsed, wiping out billions of dollars in investments. That and the looming threat of a recession have contributed to a loss of confidence in the crypto market in general.