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FCA (UK) bans the sale of crypto-derivatives to retail consumers

In contrast to months of positive headlines surrounding the crypto-adoption space, the latest news out of the UK might just resurface some of the previous negativity and misconceptions about the space. Here, I will provide a quick overview of the FCA's latest regulations, and my thoughts about how extremely misinformed and hypocritical it is. You may read the FCA's official press release here.

Overview of FCA's latest regulations

The FCA is implementing a ban on all crypto derivatives products in the UK. To be clear, the ban will only affect derivatives such as futures/options trading and not buying or holding the actual Bitcoin itself, which are still legal and absolutely cannot be banned - as they are completely decentralized and out of government control. However, here the FCA has taken an alternative approach by banning crypto products instead. The move was largely done to "protect" retail investors from larges losses, especially since (by the FCA's rationale):

  1. Cryptocurrencies have no inherent value

  2. High prevalence and association with crime and cyber theft

  3. Extreme Volatility

  4. Inadequate understanding of crypto assets by retail consumers

  5. Lack of legitimate investment need for retail consumers to invest in these products

Personally, I find that these latest regulations only show that the FCA has a poor understanding of cryptocurrencies in general and are still holding on to outdated perceptions of the space (from 2017). I will address these points individually with my views.

  1. I cannot say for all crypto assets, but major crypto assets like Bitcoin are in fact increasingly recognized as having inherent value. There are ways of efficiently valuing Bitcoin, such as through it's cost of production, stock-to-flow of scarcity , and models Based on Bitcoin as a Global Store of Value. I have written about the metrics for valuing Bitcoin in the Everything About Bitcoin FAQ here.

  2. It simply is no longer true anymore that a high prevalence of Bitcoin or crypto transactions are clandestine in nature. In its early days, as with many new innovations (such as the internet itself), it was used by many of its early adopters for transactions on the dark web. However, that is no longer true today, as most Bitcoin and crypto are used as stores of value or as speculative assets. Furthermore, it is arguable (and probably true) that the volume of illicit activities conducted in cash far surpasses that of crypto many-fold anyway.

  3. Volatility in Bitcoin has been on a consistent decline since its inception in 2009, and as the market capitalization of Bitcoin continues to grow, it can be predicted that it's volatility will inversely also decrease. I have also written about Bitcoin's decreasing volatility here.

  4. A lack of understanding of crypto assets from retail investors does not seem like a valid reason to ban an asset. The real solution should be Education.

  5. So the FCA is saying that because there is no "need" to invest in crypto, they are banning it? Is there a "need" to invest in other assets such as stocks or bonds then?

In summary, I find the latest regulations imposed by the FCA extremely dated and illogical. In my opinion, these regulations largely stem from the regulators fear and inability to regulate and control the space, as well as them lacking the ability to accurately tax corporations and individuals involved in the space. My prediction is that as Bitcoin and crypto assets continue to grow in popularity and adoption globally, the FCA may someday revise its current restrictions. Until then, we wish our traders in the UK the best of luck 😂

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