How risky is Ripple's XRP? The dangers of buying the cryptocurrency explained

RIPPLE's XRP cryptocurrency has slumped over the last week, highlighting the risks of investing in the volatile digital coin market.

Like any investment, there are risks involved in backing cryptocurrencies – here's what you need to know about buying XRP.

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Many people are tempted to buy cryptocurrencies by the promise of large returns, but there also very large risks.

The rise of trading apps have also made it easier than ever to buy cryptocurrnecies, stocks and shares at the touch of the button.

Buying cryptocurrency is a seriously risky businesses and you must be prepared to lose ALL of your cash if things go wrong.

They're highly volatile meaning your cash can go down as well as up in no time at all.

Just because it's going up now does not mean it will continue rising after you invest.

Before parting with your cash, make sure you've carried out thorough research and are confident that you can afford to lose all of your investment.

What is XRP?

XRP is a cryptocurrency that was created in 2012 by the company Ripple.

Like other cryptocurrencies, XRP is digital and has no physical notes or coins like you get with traditional currencies such as the pound or dollar.

XRP is one of hundreds of cryptocurrencies out there.

Bitcoin is the most well known and has been rebounding recently after El Salvador became the first country to accept it as legal tender, while Dogecoin has dropped.

Most cryptocurrencies have taken a hit over the past week, including XRP.

The cryptocurrency markets have been slumping since China announced a crackdown last month and Elon Musk said Tesla will not accept crypto payments.

What are the risks of buying Ripple's XRP?

Brits have been warned that they risk losing ALL of their money if they invest in bitcoin and other cryptocurrencies.

The UK's money regulator the Financial Conduct Authority issued the warning at the start of the year.

It said that among the risks are the price going up and down by a lot and very suddenly – known as price volatility.

"If consumers invest in these types of product, they should be prepared to lose all their money," the financial regulator said.

5 risks of crypto investments

THE Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.

• Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements. 
• Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
• Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market. 
• Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.  
• Marketing materials: Firms may overstate the returns of products or understate the risks involved.

It also highlighted the lack of protection if something goes wrong.

When you put your money into a savings account with a bank and it goes bust, you're usually covered by the the Financial Services Compensation Scheme (FSCS) up to £85,000.

But this is unlikely to be the case when you buy XRP and other cryptocurrencies.

And if you have a problem with a financial product you can usually complain to the Financial Ombudsman Service (FOS).

And it's unlikely that you could escalate a problem to them related to cryptocurrencies because it typically only covers traditional savings and investments.

Scammers are also out there trying to part you and your cash.

They've been known to promise high-return cryptocurrency investments and instead steal your cash, often using social media accounts and adverts to lure people.

If you do decide to buy XRP or other cryptocurrencies, make sure you are using a legitimate platform or company with a good reputation.

Cryptocurrencies themselves are not regulated because no one is responsible for issuing them (they are "mined" via a computer).

But firms offering cryptoassets must now be registered with the FCA , and anyone who does invest in cryptocurrencies should check before investing.

A risk of investing in crypto with even these legitimate platforms is that they can restrict trading, like Robinhood did earlier this year with GameStop shares.

Robinhood is not yet in the UK but there are a number of other similar apps and platforms where you can buy a range of cryptocurrencies.

Tom Stelzer, investing expert at personal finance comparison site finder.com said: "The danger of buying cryptocurrencies on platforms like Robinhood is that you don’t actually own the underlying asset.

"This means that if you want to move your coins, you won’t be able to do so, and if Robinhood decides to restrict trading at any point, you may find you’re unable to sell when you want."

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