UK regulator: Public must Beware the Risks of Bitcoin

A senior executive at the UK’s financial watchdog has said the public should be warned they could lose vast amounts of money trading in digital currencies – advice that comes as new initiatives open up virtual money to a wider audience.
Chris Woolard, the Financial Conduct Authority’s executive director of strategy and competition, was speaking at a blockchain event held by at the regulator’s office last week. He said that while there is a lot of trading in bitcoin, “that’s not to say that we don’t see risks”.
His comments come shortly after UK fund supermarket Hargreaves Lansdown launched two exchange-traded notes that enable retail investors to track the price of bitcoin. The bitcoin notes give Hargreaves Lansdown’s clients exposure to the currency without having to own the asset.
Digital currencies are volatile. Bitcoin hit an all-time high of almost $3,000 this month, with some analysts saying its value could continue to soar. But in June last year, bitcoin was worth less than a third of this figure, Woolard said.
He said there is a risk that consumers might think digital currencies are regulated like any other financial instrument, when in fact there are not.
“We don’t prohibit regulated firms from engaging in digital currency trading, nor do we prohibit banks from offering banking services to deal with currency firms that use blockchain. I am not saying that we view digital currencies as an inherently bad thing… but we do have to exercise a degree of caution,” Woolard said.
In an April discussion paper on blockchain – the infrastructure behind bitcoin that some say could revolutionise financial services and save banks billions of pounds – the FCA said that it will post relevant information warnings on its website and encourage consumer groups to increase consumer awareness around digital currencies.
Oliver Bussmann, the founder of Bussmann advisory, said: “It’s hot. Digital currencies – not just bitcoin – combined have now reached a market cap of $106bn. It’s a new hybrid asset class. Investors realise it’s a different way to invest. If you put $50,000 on Lykke you could have turned it into $350,000 within nine months. And I don’t think we are at the peak yet.”
In his view digital currencies should self-regulate. “I understand the regulator. They have a consumer protection responsibility. If you are not an expert and you invest in this without understanding the underlying revenues, it could go wrong, like it did with the internet stocks 20 years ago.”
He said the regulator understandably wants to avoid that “consumers will get this wake-up call”, but added: “The question is how can you balance that without killing the sector?