The UK’s Financial Conduct Authority (FCA) has announced its roadmap to fully regulate crypto assets by 2026, aiming to support a “safe, competitive and sustainable” market for cryptocurrencies in the Kingdom -United.
Matthew Long, director of payments and digital assets at the FCA, said the regulator “is committed to working closely with government, international partners, industry and consumers to help deliver future rules.
“A comprehensive regulatory regime for crypto will provide the clarity and confidence needed to encourage further innovation and growth within the sector,” said Dan Moczulski, UK managing director of investment platform eToro.
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The FCA is proposing a series of consultation and discussion papers between now and 2026 to establish a regulatory framework for crypto assets.
This roadmap will begin with discussion papers on market abuse and admission and disclosures during the second quarter of 2024, with consultation papers on stablecoins, custody and prudential elements expected during the first half of 2025.
The roadmap ends with the publication of final political declarations in 2026.
It is seen by many as an attempt to catch up with similar regulatory frameworks in the EU, which brought its Markets in Crypto Assets (MiCA) regulations into effect in June 2023, and the US, which is currently clarifying its own regulatory stance towards crypto assets via the Financial Innovation and Technology for the 21st Century Act (FIT 21). President-elect Donald Trump is also expected to be very pro-crypto during his second term.
Cryptocurrencies, such as Bitcoin and Ethereum, are currently unregulated assets in the UK. This means that at present, money invested in the crypto ecosystem is not protected by the type of rules that govern more conventional investments. Crypto investors do not have access to the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS), for example, if there is a problem with their investment.
This adds additional risk to investing directly in crypto, on top of the risk inherent in the generally high volatility of crypto assets.
However, findings from the FCA’s latest research into consumer behaviors and attitudes towards crypto show that around one in three people are unaware of it and think they might make a complaint to the FCA if she needed recourse or financial protection regarding a crypto investment.
“It often feels like it’s a more regulated space than it actually is, which is concerning,” said Chris Recker, legal director at law firm Kingsley Napley, specializing in digital asset disputes. “Not only can people lose their investment due to poor investment decisions, but scammers frequently operate in this industry by cheating people out of large sums of money.”
Cryptocurrency ownership in the UK is on the rise
FCA research also shows an increase in cryptocurrency ownership among UK investors.
According to the study, twelve percent of UK adults now own cryptocurrencies, up from 10% in its previous findings.
The average value of cryptocurrencies held increased from £1,595 to £1,842, while crypto awareness increased from 91% to 93%. The FCA survey shows that family and friends were the most common source of information for new crypto buyers.
Only one in ten respondents said they don’t do any research before buying cryptocurrencies.
With increased ownership comes an increased prevalence of crypto scams. As the FCA moves towards adopting a regulatory framework for crypto, it has underlined its determination to eliminate opportunities for fraudsters to take advantage of consumers through such scams.
The FCA claims to have taken down more than 900 fraudulent crypto websites and more than 50 apps since it became responsible for regulating the promotion of crypto assets in October 2023.
“Some steps can be taken to attempt to trace and recover crypto funds and assets, including through urgent interim measures such as disclosure orders and freezing injunctions,” Recker said, “but there are no no safe or guaranteed recovery path. »
How to invest in crypto
For the reasons outlined above, investors should not invest in crypto unless they are prepared to lose all the money they have invested. If you are aware of the risks but still want direct exposure, you may want to consider a small allocation as part of a broadly diversified portfolio.
In addition to buying crypto directly through a crypto exchange (but, as above, be wary of scams and research them thoroughly), you can invest in a proxy for the crypto market. Stocks like crypto exchange Coinbase (NASDAQ:COIN) or Bitcoin miner MARA Holdings (NASDAQ:MARA) tend to trade in correlation with the prices of cryptocurrencies, particularly Bitcoin.
Technology company MicroStrategy (NASDAQ:MSTR) tends to experience more dramatic moves than Bitcoin because its management uses debt in order to add Bitcoin to its balance sheet. In doing so, it has become the largest Bitcoin holding company in the world and is extremely exposed to fluctuations in the price of Bitcoin.
Alternatively, an ETF that focuses on blockchain-related companies such as the iShares Blockchain Technology UCITS ETF (LSE:BLKC) will likely demonstrate some correlation with cryptocurrency prices.
It is important to note, however, that there are thousands of cryptocurrencies that are not necessarily correlated to each other’s price movements. Proxies like these tend to be correlated with Bitcoin as the most well-known cryptocurrency (MARA and MicroStrategy in particular given that their activities are directly linked to Bitcoin in particular).
In the United States, investors can purchase ETFs that directly track the spot price of Bitcoin and Ether. Currently the FCA does not allow individual investors to purchase such ETFs, but this is an area which could be examined during its consultation process.
However, even through vehicles like these, crypto investing is incredibly risky. This is a very volatile asset class and investors should be prepared to lose all the money they have invested, whether or not they are scammed.
