CLAMPDOWN on how UK investors can buy bitcoin and other crypto currencies comes into force today, with leading industry players warning it will merely increase the risk to naïve punters lured by their sudden surge in value.
Bitcoin has romped to fresh highs, putting a move by the Financial Conduct Authority first unveiled in October into the spotlight.
The watchdog is banning the sale of certain crypto products such as derivatives to retail investors claiming they are “ill-suited”. The FCA said: “This ban reflects how seriously we view the potential harm to retail investors.”
Since then, as fears about the world economy and the stability of official “fiat” currencies such as the pound and dollar grow, bitcoin has soared. It is up this year from £6000 to more than £25,000, attracting new breeds of investor.
Yesterday JP Morgan said it could quadruple from here, saying it is in competition with gold as a store of value, a serious nudge from the world’s biggest bank.
The FCA clampdown means bitcoin derivatives can no longer be held in ISAs or SIPPs. Nor can they be held alongside other shares in investment portfolios such as ETFs.
Bradley Duke, CEO of crypto firm ETC Group said: “The FCA’s decision means UK based retail investors who want exposure to bitcoin and other cryptoassets will have to manage their own storage, which could increase their risk of losing keys and becoming a victim of cyber-crime. It also removes the ‘safety-net’ for retail investors that is provided by the suitability guidance of investment advisors when assessing the risk appetite and profile of their clients for these regulated products. Investors who want to gain access to this asset class are now left with less secure ways to invest in Bitcoin.”
Jason Brown at blockchain group Komodo said: “When the ban was passed by the UK government in October, there was no coordination with officials in the US, EU, or any other regions around the world. What the blockchain industry needs the most is consistent regulations across jurisdictions.”
Analysts say that the banned products provide many benefits to investors from diversification to strong potential for long-term growth.
One noted: “The FCA’s decision makes it harder for retail investors to access this, and those that do may be achieving this through channels and products that are riskier and provide less protection than those being banned.”
Dermot O’Riordan of blockchain investor Eden Block said: “By banning crypto derivatives, the FCA is basically indicating that they don’t know how to regulate this. The FCA has chosen to abdicate rather than lead.”
The watchdog hit back, saying the banned products “cannot be reliably valued by retail consumers”. The FCA notes the “prevalence of market abuse and financial crime” in some of these markets.
It estimates that retail consumers will save around £53 million from the ban on these products.
Sheldon Mills, interim Executive Director of Strategy & Competition at the FCA, said: “This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.
Significant price volatility, combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers at a high risk of suffering losses from trading crypto-derivatives. We have evidence of this happening on a significant scale. The ban provides an appropriate level of protection.”
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