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) yesterday said it would ‘not object to requests’ to create platforms for trading crypto-backed Exchange Traded Notes (ETNs).
In a coordinated announcement, the London Stock Exchange said it would accept applications for the admission of crypto ETNs based on bitcoin and ethereum 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 rose to a high of over $72,000 yesterday after the FCA said it would ‘not object to requests’ to create platforms for trading crypto-backed Exchange Traded Notes
Bank of England Governor Andrew Bailey has warned that they have no intrinsic value.
The Bank of England yesterday declined to comment on the FCA’s decision, but has previously said that if the crypto market continues to grow, it will pose risks to financial stability, which it will continue to monitor.
However, the government was more positive. Chancellor Jeremy Hunt recently said that Britain has become “the global crypto hub.”
Under the FCA ruling, crypto ETNs – essentially 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 their hands on them because they are “poorly suitable for private consumers due to the damage they cause”, 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 crypto. That was reflected in yesterday’s announcement, with the regulator saying: ‘Those who invest should be prepared to lose all their money.’
But it added that “greater insight and data” meant that “exchanges and professional investors should now be able to better determine whether cETNs (cryptoasset exchange traded notes) meet their risk appetite.” The FCA’s decision puts Britain in line with some European counterparts.
It opens up the prospect that products marketed on the continent by institutions such as broker Fidelity could also become available in Britain.
The US regulator, the Securities and Exchange Commission (SEC), has gone further and approved Bitcoin Exchange Traded Funds (ETFs) that allow retail investors 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 provide a return to investors when they mature, based on the performance of the underlying asset.
Russ Mould, investment director at AJ Bell, said the FCA’s statement “does not represent a glowing endorsement of cryptocurrencies as a potential investable asset.”
He said the watchdog’s announcement “can be seen as somewhat negative as it shows that the FCA is still opposed to retail investor access, despite the SEC having opened the gates to ETF providers.” So it is not the U-turn that it initially seems.’
Kathleen Brooks, research director at investors. .’