A U.K. Ban on Crypto Derivatives Will Hurt, Not Protect Investors – CoinDesk

This week the U.K.’s Financial Conduct Authority (FCA), which regulates the country’s financial services, issued a ban on the sale of crypto derivatives and ETNs to retail investors. 

While this may not seem particularly material to crypto asset markets overall – U.K. retail investors weren’t that much into crypto derivatives anyway, and the market hardly reacted at all – it is worth paying attention to for the alarming message contained within.

This message loudly says: “We don’t like crypto assets.” 

In case you think I’m exaggerating, the policy statement opens with the sentence: “There is growing evidence that cryptoassets are causing harm to consumers and markets.” (Actually, there isn’t, and to see a financial regulator make such a bold claim with no supporting evidence is jarring.)  

The message itself is fine; not everyone likes crypto assets. But this is a financial regulator whose job includes protecting investors, not passing judgement on new asset groups. The documents accompanying the ban read like a reflection of the personal opinions of some senior members, and represent a gross overstep of the regulator’s mission and remit.

Ironically, this is exactly the type of unreasonable centralized control that crypto assets were created to circumvent. 

A secondary message, also alarming, says the FCA thinks retail investors are incapable of understanding new topics.

The reasoning is couched in a “for your own good” tone – the FCA assures investors it is preventing losses of between £19 million and £101 million a year. This in itself insults retail investors’ intelligence, as whatever method they used to calculate this figure produced too wide a band to be even remotely credible. I wonder how much the same retail consumers lose on the National Lottery every year. 

Let’s take a look at the five main reasons for the ban, according to the FCA bulletin.

1) First up is the “inherent nature of the underlying assets, which means they have no reliable basis for valuation.” Seriously, show me something that does in these markets. OK, that might be a slight exaggeration, but the idea that market prices respond to fair valuations went out the window months ago. 

Plus, crypto assets are a new type of asset. They don’t respond to traditional valuation methods, but this does not mean they don’t have any value drivers. Plenty of work is being done to deepen and spread understanding of what these are.

2) Second, we have the “prevalence of market abuse and financial crime in the secondary market (eg cyber theft).” You may recall that, at the end of September, leaked documents known as the FinCEN Files showed that the U.S. Treasury has labelled the U.K. a “higher risk jurisdiction,” because of the relatively high incidence of financial crime that has nothing to do with crypto derivatives.

3) The cited “extreme volatility in crypto asset price movements” is also an unjustified excuse. Crypto…