The Financial Conduct Authority (FCA) has warned cryptocurrency investors that the technology has “no intrinsic value” and provides “few protections” to customers.
The UK watchdog has released a set of regulatory guidelines for areas of the virtual currency market that fall under its jurisdiction.
The move has been hailed by Reuters as “a milestone” in Britain’s regulation of this small yet highly popular part of the financial sector.
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The FCA said that “a combination of market immaturity, volatility, and a lack of credible information or oversight raises concerns about market integrity, manipulation and insider dealing within cryptoasset markets”, the news site reports.
It’s not the first time the watchdog has sent a warning to would-be cryptocurrency investors. Last year, an FCA study revealed that the majority of subjects interviewed about the virtual coins believed that it was “highly likely or inevitable” they would make money, The Daily Telegraph says.
The watchdog likened the “distorted thinking” of investors to “people believing they can out-smart a slot machine”, the newspaper adds.
Is bitcoin in trouble?
While the FCA’s review doesn’t explicitly say that bitcoin and its rivals, such as ethereum and Ripple, are under threat from tighter regulation, some analysts believe that the report is a sign of a possible cryptocurrency ban in Britain.
“Although not a ban, [the FCA warning is] a move in that direction,” Herbert Sim, business development chief at Broctagon Fintech Group, told Forbes.
“This lack of enthusiasm is shared by several countries; the US with its scrutiny of libra [Facebook’s own digital coin], and India, who are looking to implement a similar ban on cryptocurrencies which are not state regulated”, he said. “These movements could end up coming back to bite.”
However, Christopher Woolard, strategy and competition director at the FCA, said the watchdog’s warning was simply aimed at clarifying “which cryptoasset activities fall inside our regulatory perimeter”.
“This is a small, complex and evolving market covering a broad range of activities,” he said.
The FCA followed Woolard’s comments by advising customers to “be cautious when investing in such cryptoassets and should ensure they understand and can bear the risks involved with assets that have no intrinsic value”.
It’s worth noting that most aspects of cryptocurrency investment are unregulated and do not fall under the FCA’s Financial Services Compensation Scheme, a “lifeboat fund” that provides compensation when “some types of investment collapse”, the Telegraph says.
Has the news affected prices?
Not at the moment. Bitcoin’s volatility means prices can fluctuate wildly on the back of regulatory news, though values have remained stable in the hours following the FCA’s announcement.
At 10.30am UK time today, bitcoin values were around $10,000 (£8,260) per coin, according to ranking site CoinMarketCap. The digital coin has traded around the $10,000 mark over the past week, after tumbling from its 2019 high of $13,000 (£10,730) earlier this month.
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