Entrepreneur and philanthropist Arif Efendi is founder and principal of UK single-family office and advisory company Aethos Capital, which focuses on a range of sectors and industries. This article will look at the rising popularity of crypto assets among UK investors and moves by the Financial Conduct Authority (FCA) to create a regulatory framework for the country’s crypto sector to safeguard both the industry and the rights of consumers.
Cryptocurrency is a digital payment system. Rather than relying on banks to verify transactions, this peer-to-peer approach enables anyone anywhere to send and receive payments. Instead of physical money being held and exchanged in the real world, cryptocurrency exchanges exist purely as digital entries on an online database that describe specific transactions. When an individual transfers cryptocurrency funds, each transaction is recorded in a public ledger, with cryptocurrency stored in digital wallets.
Cryptocurrency takes its name from the encryption used to verify each transaction. Advanced coding is involved in transmitting and storing cryptocurrency data between public ledgers and wallets to provide enhanced safety and security. Founded in 2009, Bitcoin was the world’s first cryptocurrency and remains the best known today.
Due to the continued volatility of the cryptocurrency market combined with a lack of regulation of the industry, the FCA warns that purchasing crypto assets is a high-risk investment strategy, cautioning that UK investors ‘should be prepared’ to lose all their money. However, despite these warnings, consumers appear undeterred. According to the latest FCA report, the average value of cryptoassets held by UK investors has risen from £1,595 to £1,842.
The FCA report reveals that around 7mn UK citizens own cryptoassets today, equating to 12% of the country’s adult population. Indeed, even though crypto investing remains largely unregulated, UK consumers are increasingly investing in cryptoassets to diversify their portfolios, with 26% of UK adults admitting that they had dipped into their long-term savings to invest in crypto.
According to the FCA report, around a third of UK crypto investors believe they could seek recourse through the FCA if something went wrong with their investment. Unfortunately, at present, this is not the case. Currently in the UK, crypto remains largely unregulated, and therefore a high-risk investment vehicle. The FCA advises on its website that if something goes wrong consumers are unlikely to be protected and face a real possibility of losing their money. More encouragingly, however, the FCA report also suggests that 90% of UK crypto investors conduct research before buying crypto.
Matthew Long is the FCA’s director of payments and digital assets. Reflecting on the new FCA report, he suggested that the findings highlight a need for clear regulation, ensuring the safety, competitiveness and sustainability of the UK’s crypto sector.
The ever-increasing interest in cryptocurrencies is largely driven by a desire to trade for profit, with speculators forcing cryptocurrency prices skyward at times. Investing in cryptocurrencies attracts inherent risks, chief among them programming risks, regulatory risks, counterparty risks and potential for market manipulation. Nevertheless, proponents speculate that cryptocurrencies could revolutionise the financial world by making it easier to transfer funds between parties, eliminating the need for banks and other third parties, streamlining remittances and enabling users to generate attractive financial returns.
Bivu Das serves as UK general manager at the Kraken cryptocurrency exchange. Mr Das expressed support for the new FCA roadmap, explaining that recent government announcements laid out a forward-thinking vision to enable crypto to thrive in the UK in the long term. Bivu Das said that by providing legislative clarity to both staking and stablecoins, the UK had greenlit the asset class for investment opportunities and widespread adoption. Mr Das said he looked forward to working with the UK Government, regulators and industry partners to unlock the full potential of crypto, enabling everyone to benefit from the technology’s growth.
