Industry Updates

Bitcoin dives 10% as FCA warns investors should prepare ‘to lose all their money’

UK regulator banned the sales of crypto derivatives including ETNs to retail investors last October

Jamie Gordon

a gold coin on a table

Bitcoin was down 10% on Monday following an offensive launched by the Financial Conduct Authority (FCA) on cryptoassets.

The UK regulator’s ban on the sale of crypto derivatives including ETNs to retail investors came into effect at the start of this year.

On Monday, it followed this up with a stark warning which stated that cryptoasset vendors often promise high returns while their customers might not be aware of the “very highs risks” being taken with their money.

The FCA added in a statement: “If consumers invest in these types of product, they should be prepared to lose all their money”.

While these developments might indicate a seismic change in momentum from cryptos’ rampant 2020 trajectory, bitcoin still sits at over $34,500 – more than three times the $11.400 price tag it commanded just three months ago.

Attempting to demystify these attractive growth margins, the FCA said that investments in bitcoin and other cryptoassets come part-in-parcel with several risks that are not common knowledge to most retail investors.

These include cryptoasset investments not being subject to regulation beyond anti-money laundering; the lack of guarantee that cryptoassets can be converted back into cash; the impact of fees potentially being more severe than regulated investment products; marketing materials overstating returns and understating risks; and of course, “significant price volatility”.

Speaking on the suitability of bitcoin and its counterparts for retail investment portfolios, James McManus, CIO at Nutmeg, agreed with the FCA’s position.

“Cryptoassets are ill-suited for retail consumers, and it is right that the regulator is warning consumers to prevent the novelty of these products causing potential long-term harm to retail consumers,” McManus said.

The FCA’s stance on cryptoassets is one of the toughest in Europe. Its German counterpart, BaFin, for example, took a more positive approach by classifying bitcoin as a financial instrument rather like stocks or bonds at the start of last year.

This has led to a number of listings on the Deutsche Boerse including the BTCetc Bitcoin Exchange Traded Cryptocurrency (BTCE) and the 21Shares Bitcoin ETP (ABTC).

Last November, VanEck became the latest issuer to launch a bitcoin ETP on the German exchange, the VanEck Vectors Bitcoin ETN (VBTC).

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