Compliance

UK Watchdog Sounds Alarm Over Crypto Spread-Betting

Josh O'Neill, Assistant Editor, 20 November 2017

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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. 

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