A HUGE change to crypto investing rules could come into force as the city watchdog issues a warning.
The Financial Conduct Authority (FCA) is set to lift a ban on some investments for individual, or retail, investors.
The FCA is mooting lifting a ban for individual investors[/caption]
The watchdog has launched a consultation looking at allowing them to access crypto exchange-traded notes (cETNs).
Crypto ETNs can be bought and sold and work by tracking the performance of cryptoassets like Bitcoin and Ethereum.
It means people are exposed to its changing value without needing to hold the asset themselves.
Currently, just professional investors are allowed to buy and sell the investment product after the FCA granted them access last year.
At the time, the regulator said it still believed crypto ETNs to be “ill-suited for retail consumers due to the harm they pose”.
David Geale, the FCA’s executive director of payments and digital assets, said the proposals today reflected how the FCA was committed “to supporting the growth and competitiveness of the UK’s crypto industry”.
However, he added: “We want to rebalance our approach to risk and lifting the ban would allow people to make the choice on whether such a high-risk investment is right for them given they could lose all their money.”
Access to crypto derivatives would still be banned for retail investors – but the FCA said it would continue to consider its approach to high-risk investments.
In April, Chancellor Rachel Reeves said she wanted the UK to be a “world leader in digital assets” and announced plans to make crypto firms subject to regulation in the same way as traditional finance companies.
“While the UK will always be committed to high international standards, I am determined that our regulatory framework supports economic growth,” she said at the time.
But the FCA’s chairman Nikhil Rathi recently warned that the number of young people turning to crypto as their first taste of investment was “not great”, adding that it was “very high risk and you could potentially lose all your money”.
The price of Bitcoin hit a fresh all-time high last month, topping about 111,000 dollars (£82,000) as the crypto market rallies amid support from Donald Trump’s administration in the US.
What is cryptocurrency?
Cryptocurrencies differ from physical currencies, such as the pound.
They are created using blockchain technology and part of their appeal is that they are not controlled by governments or a central bank, such as the Bank of England.
It means the currency can be used to transfer wealth outside of the traditional banking system, making it easier to cross borders or stay anonymous when moving wealth.
Bitcoin is the leading cryptocurrency but its rise has helped other cryptocurrencies also grow in value, such as Ethereum.
In recent years, more mainstream companies and institutions have invested in cryptocurrency, and part of the recent rise in value is based on President Trump‘s favourable views on cryptocurrency.
How do people invest in crypto?
In the UK, you cannot invest in cryptocurrency funds through stocks and shares ISAs, general investment accounts, or pensions due to regulations.
If you want to invest in Bitcoin or other cryptocurrencies, you’ll need to use specialist trading platforms like Coin Bureau or PlanB.
These platforms allow you to own crypto as a financial asset, though some accounts may not let you spend it.
Crypto businesses in the UK must register with the Financial Conduct Authority (FCA).
To check if a business is registered, visit the Financial Services Register at register.fca.org.uk/s/search?predefined=CA.
There’s also a list of unregistered businesses at register.fca.org.uk/s/search?predefined=U.
Businesses on this list may be operating illegally.
If you don’t want to invest in cryptocurrencies directly, you can still gain exposure to the market by investing in companies involved in the crypto space.
The dangers of investing in crypto
HERE are five key risks to keep in mind when investing in cryptocurrencies:
- Consumer protection: Many cryptocurrency investments promising high returns are not fully regulated, apart from anti-money laundering rules. This means you may have limited protection if things go wrong.
- Price volatility: Cryptocurrency prices can rise and fall dramatically, making it easy to lose money. It’s also difficult to reliably determine their value.
- Product complexity: Crypto products and services can be complicated, which makes it hard to understand the risks. Plus, there’s no guarantee you can convert your cryptocurrency back to cash—it depends on market demand and supply.
- Charges and fees: Crypto investments often come with high fees, which can eat into your returns. These fees are often higher than those for regulated investments.
- Marketing hype: Some firms exaggerate potential returns or downplay the risks involved. Be cautious of flashy promotions.
It’s essential to only invest in cryptocurrency if you fully understand how it works and the risks involved.
Remember, there’s no guarantee you can exchange it for real cash, and its value can change drastically in a short time.
If something sounds too good to be true, it probably is.
Always double-check with a trusted friend or advisor if you’re unsure.
Be wary of glowing websites or perfect reviews – fraudsters often create convincing scams.
For tips on avoiding scams, check out our guide.
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