The Financial Conduct Authority (FCA), the UK’s main financial regulator, continued its centuries-old tradition of warning UK consumers that they “should be prepared to lose all their money” if they meddle in bitcoin.
His latest warning came in a press release stating that all bitcoin ATMs in the country are operating illegally because their owners have not been vetted by the regulator.
More on that later. But first, let’s take a quick look at how consumers would have behaved if they had listened to the FCA on one of the previous occasions when it drove people away from bitcoin – the oldest, largest and most secure decentralized monetary network. in the world.
The colloquialism was first used on December 14and, 2017 – when bitcoin was trading at $16,405 – in remarks by FCA chief executive Andrew Bailey (who later became governor of the Bank of England, the UK’s central bank). He told the BBC: “If you want to invest in bitcoin, prepare to lose all your money”. Based on a market price of $38,900 at the time of writing, bitcoin has appreciated by 137% since.
Consumers therefore missed the opportunity to more than double their money if they followed Bailey’s advice.
One year later, October 29and2018, the FCA published a report warning that “Crypto-assets have no intrinsic value and therefore investors should be prepared to lose all the value they have invested in them”. Bitcoin was trading for $6,266 that day, meaning anyone listening to the FCA missed a gain of 521%.
It’s getting worse. March 7and2019, after conducting two research studies on UK consumer attitudes towards cryptocurrencies, FCA Executive Director Christopher Woolard concluded that they “may not be well understood by many consumers” and anyone “investing in it must be prepared to lose all their money”. Alas, it seems to be Woolard’s understanding that was missing. Bitcoin was trading for just $3,857 that day. Anyone who heeded his warning missed a peek 909% profit.
The FCA continued to issue research briefs and press releases on bitcoin in 2020, but for some reason refrained from stoking fears of a price crash. This saved him a bit of embarrassment, as the value of the cryptocurrency soared 310% over the year (from $7,175 on January 1st at $29,403 as of December 31st).
Of course, however, the regulator was back to its old tricks in 2021. At least three official communications on the FCA’s website warned Britons that they would be likely to be rekt (my paraphrase) if they were enough fools to buy bitcoin: this press release January 11and (market price $35,450); this research note June 17and ($38,110); and this speech by FCA President Charles Randell on September 6and ($52,719).
Congratulations if you followed Randell’s advice, because you are among the small minority of consumers who would have benefited by listening to the FCA about bitcoin. Cryptocurrency has lost 26% of its value since Randell’s speech (albeit after jumping 31% to an all-time high of $69,000 in the weeks immediately following his remarks).
Now, I don’t want to be unfair to the FCA. They do important work that significantly protects UK consumers from scams and predatory financial practices that can easily ruin lives. Of course, I expect them to be conservative in their advice. Needless to say, I support any effort they make to highlight the dangers of investing in complex financial instruments – particularly leveraged products – and not reviewing service providers or researching risk management strategies.
Frankly speaking, however, that’s not what they’re doing when they’re bashing bitcoin.
A cordial rebuttal
Bitcoin has already proven itself do not be a high-risk or opaque investment.
On the contrary, bitcoin maintained a long-term upward trend throughout its 13-year lifespan (during which it became, by far, the most profitable investment of modern times). It allows holders to self-custody their funds, thus avoiding any need to trust or rely on central authorities or service providers. And, obviously, it’s not a leveraged product unless you explicitly choose to make one.
Bitcoin is not secured by people, banks or governments, but by the laws of mathematics. It uses public key cryptography – a type of encryption that makes your password about as easy to guess as it would be to locate a specific grain of sand all over Greece by chance.
Security comes in other forms, of course, and bitcoin excels at that, too. Could it be hacked? No. The proof-of-mining system deployed by bitcoin is so energy-intensive that any potential hacker, say, the United States. government – should spending around $15 billion to even attempt a ‘51% attack’ (this estimate will continually increase as the network grows). Such an attack could, in theory, if successful, bring down the network. But that wouldn’t stop a parallel network from starting the very next day based on a snapshot of the pre-hacked blockchain. In this case, you would need another $15 billion to try again. etc
What about the security of knowing that your funds will not be diluted?
Again, bitcoin’s decentralized consensus mechanism – which is overseen and enforced by miners – ensures that there will only ever be 21 million bitcoins. Do dollars, euros and pounds have a guaranteed fixed supply? No. Does real estate? No. Public or private equity? No. Gold ? A little, but not really.
All of this begs the question: why is the FCA – which has a legal duty to protect consumers – so determined to stoke fear of bitcoin? Why doesn’t he tell cash holders, landowners, and stock market investors that they too must “be prepared to lose all their money”?
Look at the regulator’s latest announcement on Bitcoin ATMs and its biased narrative is evident.
The FCA claimed that the operators of these vending machines – only 56 of these are in service in the UK – put consumers at risk because they are not registered with the regulator and therefore have not been confirmed to comply with UK money laundering legislation. This may or may not be a legitimate concern about the specific operators of these 56 machines; I am not in a position to verify their conformity myself.
What I do know, however, is this: Stating that “consumers should not use” Bitcoin ATMs and insinuating that the technology is incompatible with money laundering compliance is grossly misleading.
There is more than 36,000 bitcoin ATMs in operation worldwide – 88% of which are located in the United States. All of the major operators comply with internationally recognized Know Your Customer (KYC) regulations, which form the backbone of anti-money laundering safeguards. If they didn’t, they couldn’t get licenses to operate in tightly guarded jurisdictions like the United States. All also limit the size of transactions that individual users can execute, making the machines highly ineffective for money laundering.
The FCA has presented the immature scale and unregulated nature of the UK bitcoin ATM industry as concerning. It’s specious. The sector is immature and unregulated only because UK regulators – unlike their US counterparts – have deliberately created a hostile environment for operators that deters them from entering the UK market.
And that brings us full circle. Why is the FCA so opposed to an ecosystem that empowers consumers around the world and is openly embraced by regulators in financially savvy countries like the US and Switzerland?
Is his position related to his close working relationship with the Bank of England, whose ability to influence consumer behavior (via negative real interest rates) is disrupted by bitcoin? Does it have to do with the fact that the FCA’s £636m ($829m) annual budget is funded entirely by legacy financial entities – banks, mutuals and financial advisers – the vast majority of whom rightly consider the bitcoin as a threat to their profitability?
Only the FCA can answer these questions. What’s not up for debate, however, is that its downtrend has been spectacularly off the mark for several years, costing unlucky consumers listening to it huge sums of money.
It’s time for the UK’s top financial regulator to drop the childish language about bitcoin and remember what interests it has a legal duty to protect.