The FCA moves to ban cryptocurrency products! What should you do?

The cryptocurrency class is one which divides opinion like no other. Is it just another financial bubble, or a genuine game-changer for an increasingly-digitalised world?

Whatever your individual opinion, the reputation of these new-age assets took an almighty smack on Wednesday after the Financial Conduct Authority (FCA) released a damning report on the asset class and how it plans to deal with it.

“Poor products”

In a bid to protect retail customers from “sudden and unexpected losses”, the regulator said it’s looking at banning the sale, marketing and distribution of derivatives (contract for difference, options and futures) and exchange traded notes that reference unregulated transferable cryptoassets.

Explaining its rationale for the move, the FCA said it had a duty to stop what it described as “poor products” being sold by firms from inside and outside the UK. More specifically it voiced concerns over:

• The inherent nature of the underlying assets which it says has “no reliable basis for valuation.”
• Widespread market abuse and financial crime in the secondary cryptocurrency market (like cyber theft).
• The “extreme volatility” of cryptocurrency prices.
• The “inadequate understanding” that retail consumers have about digital currencies, as well as the lack of a clear investment need for investment products which reference them.

What goes up..?

Despite such damning comments from one of the world’s leading financial regulators, prices keep steaming higher. Bitcoin, for one, has made fresh ground above $11,250 following the release of the FCA’s report as the market has shrugged its collective shoulders.

Investors do need to sit up and take notice though. Fears over the stability and legitimacy of these digital assets are ones which are shared by regulators the world over. It’s quite possible that today’s intervention by the UK regulator could prompt similarly-damning action by other bodies.

The US Securities and Exchange Commission is still dragging its feet on green-lighting the launch of a Bitcoin exchange-traded fund on the back of such concerns, after all. And a failure to sign off on this could cause cryptoasset values to collapse through the floor as they did in 2018.

Better ways to make a million

So don’t be tempted by those stratospheric crypto price gains of recent months. You’re better off using your cash for safer investment classes like stocks, I say. There are no shortage of great companies to choose from, whatever your attitude to risk, after all. And there’s also plenty of opportunity to get rich here as well.

Just ask the 1,000 or so UK millionaires who have made their fortunes solely by buying into equities markets via Stocks and Shares ISAs. And for today’s stock investors, the chances of joining the seven-figure club have never been better following government moves to increase the amount we can stash away into these tax-free wrappers each and every year.

My colleague Rupert Hargreaves recently estimated it could take less than 21 years to make a million through investing in a Stocks and Shares ISA. And I’m not going to pooh-pooh his findings.

Unlike Bitcoin, stock investing has emerged as a tried-and-tested way for long-term savers to get rich, and I see no reason for this investment class to lose its crown any time soon.