An "increasing number of customers" were buying virtual currencies while being unaware of the "high risk of losing their money invested", the European Securities and Markets Authority, the European Banking Authority and the European Insurance and European Insurance and Occupational Pensions Authority said in a joint statement on Monday.
"The virtual currencies currently available are a digital representation of value that is neither issued nor guaranteed by a central bank or public authority and does not have the legal status of currency or money,” said the ESAs.
“They are highly risky, generally not backed by any tangible assets and unregulated under EU law, and do not, therefore, offer any legal protection to consumers."
The ESAs also asserted that European customers could fall prey to the “extreme volatility and bubble risk” of the currencies, while warning that virtual currency exchanges are unregulated by EU law.
Christopher Giancarlo, chairman of the US Commodity Futures Trading Commission, called for better Federal oversight of cryptocurrency exchanges last week, as the current regime does not give US regulators direct jurisdiction over these trading platforms.
Moody's analysts said on Monday that more effective oversight of bitcoin exchanges by US regulators would be "credit positive" for futures providers like CME and CBOE, as these exchanges could be "exposed to reputational risks from being indirectly associated with significant fraud".
The ESAs added that many virtual currency exchanges had fallen prey to “severe operational problems” like trading disruptions in which consumers have made losses due to trading halts. In January, cryptocurrency exchange Kraken went down for two days during a system upgrade that was scheduled to last roughly two hours.
Kraken is one of the exchanges used to provide pricing data that helps mark bitcoin futures at CME.
The statement also warned investors not to use virtual currencies to pursue "long-term goals like saving for retirement".
The market capitalisation of cryptocurrencies is down almost 50% from a peak at the beginning of the year, resting at roughly $427bn, according to website coinmarketcap.com. After hitting a three month low last week, bitcoin's price has recovered to $8,700.
The news comes after ESMA made a similar warning in November on initial coin offerings, a way of raising capital for projects using cryptocurrency "tokens".