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  • Consumers have a limited understanding of cryptocurrencies and can incur losses due to their high volatility, says UK’s financial watchdog.
  • CFDs, options and futures, and exchange-traded notes to be affected by the proposed ban.

A ban on cryptocurrency assets has been proposed by the market regulators in the UK as it could potentially cause huge losses for retail consumers who are unlikely to understand the risks or value of these currencies. The FCA (Financial Conduct Authority) said that crypto assets such as derivatives and exchange-traded notes (ETNs) could be a threat to small investors.  

The committee talked about their extremely volatile nature, the difficulty in valuing them, users’ lack of understanding of what they were buying and the increased chances of financial crimes as their reasons for initiating the ban. FCA said that the investors might “suffer harm from sudden and unexpected losses if they invest in these products”, and approximated that the ban would benefit users to the tune of between £75m and £234.3m a year.

Some complex financial products that would be affected by the proposed ban are contracts for difference (CFDs), options and futures, and exchange-traded notes. The executive director of strategy and competition at FCA, Christopher Woolard said:  

“As with our work on the wider CFD and binary options markets, we will act when we see poor products being sold to retail consumers. These are complex contracts built on top of complex assets.

Most consumers cannot reliably value derivatives based on unregulated crypto-assets. Prices are extremely volatile and as we have seen globally, financial crime in crypto-asset markets can lead to sudden and unexpected losses. It is therefore clear to us that these derivatives and exchange-traded notes are unsuitable investments for retail consumers.”

Moreover, Woolard had warned Facebook that the upcoming launch of its own cryptocurrency Libra will warrant intense scrutiny from the market regulators. Chris Huges, one of the co-founders of Facebook said that Libra could allow the corporations involved in the scheme to wield power over nation states.  

The fluctuations in the value of bitcoin proved to be a prime example of its volatility in the price, aiding the concerns of the FCA. Bitcoin’s prices fell below $10,000 this Tuesday, down 30% from last week’s peak of nearly $14,000. Bitcoin, which was sunk below $6000 was shot up on the back of Facebook’s Libra announcement. According to some analysts, the cryptocurrency which has a history of wild swings is predicted to rise back to its highest so far – $20,000 or stoop as low to $3000. Late in 2017, it reached $20,000 before a collapse in 2018.