Bitcoin enters mainstream after FCA lifts ban: LSE given green light to trade in crypto-linked products


The City watchdog has softened its stance on cryptocurrencies such as bitcoin by opening up the London Stock Exchange to trading in crypto-linked products.

The Financial Conduct Authority (FCA) said yesterday it would ‘not object to requests’ to create platforms for trading in 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 biggest cryptocurrency, rallied yesterday to a high of more than $72,000.

Britain’s financial establishment has long set its face against cryptocurrencies.

Bank of England governor Andrew Bailey has warned they have no intrinsic value.

The Bank of England declined to comment on the FCA’s decision yesterday but has previously said that if the crypto market continues to grow, it will present financial stability risks, which it will continue to monitor.

The Government, however, has been more positive. Chancellor Jeremy Hunt recently said Britain has become ‘the global crypto hub’.

Under the FCA’s ruling, crypto ETNs – effectively bets on cryptocurrency movements – would be available only to professional investors such as investment banks and asset managers.

Ordinary investors will not be able to get their hands on them as they are ‘ill-suited for retail consumers due to the harm they pose’, the regulator said.

However, it was unclear last night whether savers might indirectly be exposed through pension funds or other investments.

The FCA has consistently warned about the risks of investing in crypto. That was echoed in yesterday’s announcement, with the regulator saying: ‘Those who invest should be prepared to lose all their money.’

But it added that ‘increased insight and data’ meant ‘exchanges and professional investors should now be able to better establish whether cETNs [cryptoasset exchange traded notes] meet their risk appetite’. The FCA’s decision brings the UK into line with some European counterparts.

It opens up the prospect that products marketed on the continent by institutions such as broker Fidelity could become available in Britain.

US regulator, the Securities and Exchange Commission (SEC), has gone further, authorising bitcoin exchange-traded funds (ETFs) which allow retail investors exposure to the cryptocurrency.

ETNs, unlike ETFs, do not own the assets upon which they are based. Instead, they are based on debt, like bonds, and deliver 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 investible asset’.

He said the watchdog’s announcement ‘could be seen as slightly negative, since it shows the FCA is still opposed to access for retail investors despite the SEC opening the gates to ETF providers. As such, it is not the U-turn that it may initially seem’.

Kathleen Brooks, research director at XTB, said: ‘There has been $10billion poured into the bitcoin ETFs that launched earlier this year, and there are signs that a small allocation to alternative asset classes like bitcoin are worthwhile for longer term investors and institutional investors.’

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