Why Is The UK Proposing A Ban On Crypto-based Investment?

By Jamie Hill - 24 September 2019


In the last few years, it is fair to assume that no one could have missed all the excitement and impact cryptocurrencies have had all over the world.

In fact, it is now quickly becoming the norm for members of general public to have a Luno Bitcoin wallet, to send cash to relatives as well as purchasing goods on eBay. This is definitely the case when looking at countries like the United Kingdom.

However, when it comes to investment side of crypto, there are moves for regulation afoot.  The Financial Conduct Authority who regulate the UK market has put plans in place to prohibit derivatives on cryptocurrencies where retail investment is concerned. They suggest that it would be impossible for them to be valued accurately, so any trading which takes place would be akin to gambling.

According to the FCA, there’s no reliable basis for valuation, there’s the potential for market abuse and crime such as cyber theft, the prices are incredibly volatile, and there’s inadequate understanding. All of these equate to the potential for unexpected and sudden losses where crypto-based investments are concerned, and this could prove to be a disaster in some cases.

Therefore, the FCA is exploring the possibility of blanket banning crypto-based investment to retail consumers, and this would prohibit the sale, distribution and marketing of all derivatives moving forward. Their decision comes following an 18-month study which was carried out to ascertain the reliability of cryptocurrencies when it came to market movement and valuation.

The FCA found that gold, which is also another volatile asset, could be valued a lot easier than cryptocurrencies, and the unpredictability of the latter proved to be too much of a concern. It was especially telling when two analysts were asked to determine Bitcoin valuations using the same pricing model, and one came up with $20, and the other $8,000. Therefore, proving it impossible to be accurate where valuations are concerned.

During their study, the FCA monitored multiple crypto-tokens and their market movement accurately, something they found to move in tandem. Their findings showed that the crypto-market and prices of tokens, in general, is driven more so by speculation than for any economic or technological reasons, therefore proving investment to be very much a form of gambling.

Bitcoin, the world’s leading cryptocurrency, was trading at just $3,000 at the backend of 2019, but a recent resurgence saw its price climb to $13,000. Since then, there has been a slight decline, but this proves the FCA’s theory that valuing such investments and assets would prove to be impossible over time, as people would be gambling on what’s to come where market price is concerned.

The move by the FCA, first discussed last year, is expected to enable consumers to avoid losses of up to £230 million a year and beyond. However, some feel that a complete ban isn’t the way to go. There are concerns within the industry that if an outright ban is put in place, that some could turn to unregulated options that would leave them unprotected as a result.

As things stand, the industry has until next month to respond to the plans put forward by the FCA. While some will be in favour of action, there will likely be a kickback against the blanket ban proposed, so compromise will be sought on both sides to come to an agreement which all parties are in favour of moving forward.

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