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The City watchdog has softened its stance on cryptocurrencies such as bitcoin by opening the London Stock Exchange to trading in crypto-linked products.
The Financial Conduct Authority (FCA) said yesterday that it would “not oppose applications” to create platforms for trading cryptocurrency-backed Exchange Traded Notes (ETNs).
In a coordinated announcement, the London Stock Exchange said it would accept applications for the admission of bitcoin and ethereum-based crypto ETNs in the second quarter of this year.
Bitcoin, the world’s largest cryptocurrency, rose to a high of over $72,000 yesterday.
The British financial establishment has long opposed cryptocurrencies.
Rally: Bitcoin soared to a high of over $72,000 yesterday after the FCA said it would “not oppose applications” to create platforms for trading cryptocurrency-backed Exchange Traded Notes.
Bank of England Governor Andrew Bailey warned that they have no intrinsic value.
The Bank of England declined to comment on the FCA’s decision yesterday, but previously said that if the cryptocurrency market continues to grow, it will present risks to financial stability, which it will continue to monitor.
The Government, however, has been more positive. Chancellor Jeremy Hunt recently said that Britain has become “the global crypto hub.”
Under the FCA ruling, crypto ETNs (effective bets on cryptocurrency movements) would only be available to professional investors, such as investment banks and asset managers.
Ordinary investors will not be able to get them because “they are not suitable for retail consumers due to the harm they pose,” the regulator said.
However, it was unclear last night whether savers could be exposed indirectly through pension funds or other investments.
The FCA has consistently warned about the risks of investing in cryptocurrencies. This was reflected in yesterday’s announcement, when the regulator said: “Those who invest should be prepared to lose all their money.”
But he added that “greater knowledge and data” meant that “exchanges and professional investors should now be able to better establish whether cETNs (crypto-asset exchange-traded notes) meet their risk appetite.” The FCA’s decision brings the UK into line with some European counterparts.
It opens up the possibility that products marketed on the continent by institutions such as broker Fidelity could be available in Britain.
The US regulator, the Securities and Exchange Commission (SEC), has gone further and authorized bitcoin exchange-traded funds (ETFs) that allow retail investors to gain exposure to the cryptocurrency.
ETNs, unlike ETFs, do not own the assets on which they are based. Instead, they are based on debt, like bonds, and offer a return to investors when they mature based on the performance of the underlying asset.
Russ Mould, chief investment officer at AJ Bell, said the FCA statement “does not represent an enthusiastic endorsement of cryptocurrencies as a potential investment asset.”
He said the watchdog’s announcement “could be seen as slightly negative as it shows the FCA is still opposed to retail investor access despite the SEC opening the doors to ETF providers”. As such, this is not as much of a U-turn as it might initially appear.”
Kathleen Brooks, director of research at XTB, said: “$10 billion has been invested in the bitcoin ETFs that launched earlier this year, and there are signs that a small allocation to alternative asset classes like bitcoin is worth the sad for institutional and long-term investors. .’