The astonishing rise of bitcoin in 2024 has reignited the cryptocurrency frenzy. Even the FCA is starting to take notice.
- Bitcoin is up 114% for the year to date, fuelled by Donald Trump’s victory
- The FCA has published detailed plans to make crypto a fully regulated asset class by 2026
- This should address some consumer misunderstandings about crypto investing
Cryptocurrencies have become increasingly difficult to ignore. Bitcoin is up 114% for the year to date, fuelled by Donald Trump’s victory. A recent survey from WisdomTree found that up to 40% of professional investors are planning to increase their exposure to cryptocurrencies in the next year. For advisers, the chances are that their clients – or more likely, their clients’ heirs - are thinking about it, even if they’re not.
The current situation is problematic. Although Bitcoin has proved a good investment for those who bought in recently, it has been extremely volatile, and other cryptocurrencies have been an even wilder ride. It is still a currency, with no assets to support it, and because it is decentralised, no government will step in if it goes awry. Worryingly, the FCA’s own research shows that around one-third of crypto investors believe they could raise a complaint with the FCA if their investment goes wrong.
Another concern is that cryptocurrencies are heavily marketed to young people via social media platforms, with few warnings about the potential risks and a lot of hype about the potential rewards. The messaging around risk is unbalanced. The conventional investments that most young people will need to secure a comfortable retirement come with apocalyptic risk warnings, while there are no similar guard-rails around crypto assets.
With millennials about to be subject to the most significant wealth transfer in history as capital filters down from boomers, that could be a lot of hard-earned wealth disappearing if crypto goes wrong.
The FCA is now taking the growth of crypto assets seriously. It is responding to an increase in ownership of crypto with the publication of detailed plans to make it a fully regulated asset class by 2026. It wants to create a ‘safe, competitive and sustainable’ market for cryptocurrencies in the UK.
The EU and US are already more advanced. The EU has the Markets in Crypto Assets Regulation (MiCA) regulation, which came into effect in June 2023. The US is currently working on its Financial Innovation and Technology for the 21st Century Act. This could be accelerated under Donald Trump.
There are arguments for crypto – as a diversifier, for example, or a viable alternative to gold. It is possible to sell it on its recent performance, or by pointing out that all the naysayers have been wrong so far. However, it is not investment and it is vital that people understand the difference.
