Compliance
UK Watchdog Sounds Alarm Over Crypto Spread-Betting

The regulator has warned that investors in such instruments could end up losing more than they initially invested.
The UK’s financial watchdog has fired a warning about
crypto-currency spread-bets, touting them as “extremely
high-risk, speculative products”.
Contracts for differences (CFDs), including spread-betting, are
financial instruments which allow investors to speculate on the
price of an asset often offered through online platforms. Such
platforms are often widely advertised on public transport in the
UK, for example.
But instruments with crypto-currencies, such as bitcoin, as the underlying
asset entail several risks, the Financial
Conduct Authority (FCA) has warned.
“CFDs are typically offered with leverage, which means you only
need to put down a portion of the investment’s total value.
However, leverage also multiplies the impact of price changes on
both profits and losses. This means you can lose money very
rapidly,” the regulator said in an online statement last
week.
Crypto-currencies are decentralised, online-only currencies that
use a technology called blockchain to enable users to circumvent
banks' services and transfer holdings without any interference
from a bank or third-party institution. They are not issued or
backed by a central bank or government.
Bitcoin, the first crypto-currency, has seen its value skyrocket
since its conception in 2009. It has gone from being virtually
worthless less than a decade ago to one coin’s price being as
just under $8,000. Year-to-date, its value has risen more than
700 per cent, outperforming any other asset class.
However, the price volatility of crypto-currencies coupled with
the risks attached to CFDs “places [investors] at risk of
suffering significant losses and potentially losing more than you
have invested,” the FCA said.
Bitcoin’s price swings have even lured the likes of hedge funds,
of which there are now estimated to be more than 120 focused
solely on bitcoin, according to financial research house
Autonomous Next.
Still, “you should only invest if you are an experienced investor
with sophisticated knowledge of financial markets and you fully
understand the risks associated with CFDs and crypto-currencies,”
the FCA said.