Market, custody, cyber, transfer and issuer risk: what each looks like in practice and how to explain it without jargon.
Volatility and liquidity
- Crypto-asset prices can move by double digits in a day, and falls of more than 70% from a peak have happened more than once.
- Liquidity can disappear under stress: in a thin order book, a large sale moves the price.
- Put risk in money terms: what would this position be worth after a 50% fall?
Custody: who holds the keys
- Whoever controls the private key controls the asset.
- Self-custody leaves the risk of loss with the client; custody by a licensed provider moves it to a regulated firm.
- Under MiCA, custodians must keep client crypto-assets segregated and are liable for losses caused by incidents attributable to them, up to the market value of what was lost.
Cyber and operational risk
- Hacks, phishing and compromised keys are among the most common causes of loss.
- Smart contracts can contain bugs that get exploited. Audits reduce this risk but do not remove it.
- Crypto-asset service providers also fall under DORA, the EU's digital operational resilience rules, which apply from 17 January 2025.
Transfer risk
- Blockchain transfers are usually irreversible. The wrong address or network means the funds are gone.
- Good practice: send a small test amount, check the network, confirm the address through a second channel.
- Since 30 December 2024, EU rules require originator and beneficiary information to travel with crypto transfers between providers.
Issuer, legal and tax risk
- A token can lose its value if the issuer fails, the project is abandoned or a reserve is mismanaged.
- Rules differ outside the EU: a product that is legal here may not be elsewhere.
- Tax treatment varies by country and belongs in the conversation.
Key takeaways
- Explain every risk in money terms, not adjectives.
- Custody choice decides who carries the loss when keys are lost or stolen.
- Most transfer losses are permanent. Prevention is the only cure.
Sources
- Regulation (EU) 2023/1114 (MiCA), EUR-Lex
- Regulation (EU) 2022/2554 (DORA), EUR-Lex
- Regulation (EU) 2023/1113 (transfer of funds), EUR-Lex
Educational content only, not legal, tax or investment advice. Based on Regulation (EU) 2023/1114 (MiCA) and related EU texts as of September 2026. Check the official texts before relying on anything here.