Disclosure: The opinions and opinions expressed here belong to the authors solely and do not represent the views or opinions of the crypto.news editorial.
It is often said that good regulations should promote confusion rather than hinder it. However, the FCA’s attitude towards digital asset ETP is stubbornly conservative and has been set that way for the past decade. As things stand, the FCA is currently banning UK retail investors from accessing digital assets through ETP, a product traded on regulated exchanges. The reasons for being quoted are well known and can be summarised essentially as follows: There is no challenges associated with valuing true value, the high prevalence of cybercrime, the extreme volatility associated with these speculative assets that people understand and, finally, the need for legal investment in cryptocurrency.
The aforementioned reasons could have held weights 10 or 5 years ago, but these arguments seem increasingly outdated as digital assets enter the mainstream and over 500 million people use them all over the world for reasons beyond just speculation. For one, the criticism that cryptocurrencies are highly speculative and effective value applies to many traditional asset classes (early stage venture capital, art, and goods) that face comparable challenges when trying to judge value. However, these are still accessible to retail investors. Although often overlooked, it is less important that, unlike the aforementioned traditional assets, cryptocurrencies, and those with established utilities or financial characteristics such as Bitcoin (BTC), it has a global liquid market that supports transparent, auditable supply mechanisms, and assessment frameworks based on adoption, shortage and use.
Critics have pointed out how Bitcoin and digital currency can be used for malicious means since its inception. Certainly, my first encounter with Bitcoin came in 2011 when I saw it being applied to criminal transfers in GCHQ. It may have been true over a decade ago, but authorities are working closely on its potential use, illegal activity in the cryptocurrency market is declining, and often more traceable due to blockchain transparency. Major ETP operates on a regulated exchange with institutional grade custodians and compliance measures. Cryptocurrency transfers, by definition, leave a signature that can be monitored, unlike a suitcase filled with cash.
Critics cite extreme volatility related to cryptocurrency, in addition to their speculative nature, which is undoubtedly true, but volatility exists in many retail accessible asset classes, such as leveraged ETFs and EM stocks. Volatility and the associated risks are not merit exclusions from retail investors, particularly when access is made through diversification and professionally structured ETPs with transparent risk disclosure.
A more equitable and more manageable criticism is the lack of education and understanding of how retail customers invest in these products. If you don’t have the right knowledge of how to store your assets, check the purchased assets on certified exchanges and make sure your data is properly managed. Consumers are vulnerable to costly fraud and errors. For this reason, investor education should be a regulatory priority, not a reason for exclusion. Many retail investors are routinely assigned to complex products (structured notes, options, etc.) under regulated advice or self-directed. Crypto ETPS offers familiar, regulated wrappers for exposure, simplification of access, removal of custody and technical barriers, thereby improving without reducing investor understanding. At Bitise, we are currently working directly with the CFA and the Allocator community to improve education for both retail and institutional investors.
The ultimate and most used criticism of common blockchain technology and cryptocurrencies is that it is a “problem-seeking solution” and there is no need for legitimate investment. Defining it is highly paternalistic to constitute a “legitimate need” and contradicts the principles of the free market. Retail investors can seek hedge against portfolio diversification, long-term growth, or financial decline. All of these could potentially provide a cryptographic procedure. Demand is clear. UK investors are already accessing crypto via offshore platforms, which are often at greater risk.
It is clear that the current situation from the FCA is unacceptable. With 7 million retail investors/users in the UK alone, you can now access only offshore platforms and unregulated products with significantly different corporate governance and compliance levels. This technology has proven to be more than just a trend. It is now popular in all sectors and industries around the world. Digital assets and blockchain technology lie in the link between multiple megatrends, including digitalising money, agent AI, energy grid optimization, and real-world assets tokenization. Retail investors want to support these markets’ Web3 economy and future growth. The FCA should provide them with guidelines and protections they are screaming for.
