Chancers bellyaching about the FCA’s sensible decision to ban crypto is futile

Rather unbelievably, some self-appointed voices are questioning the FCA’s decision to ban crypto, saying it stifles development. Quite the contrary, it stops these chancers destroying the electronic financial sector with their schemes

When will the cryptocurrency silliness end?

Ever since the bow tie-wearing, waistcoat-toting mavericks began to parade their anarchistic attempts to circumvent the established financial markets system by introducing various hairbrained digital currency schemes, there has been one catastrophe after another, ranging from fake exchanges stealing from depositors to illicit marketplaces being closed down by the US Department of Justice.

Ten years is a very long time, and certainly long enough for the general public to understand that a non-existent currency traded on a non-existent exchange is the equivalent to snake oil, only with massive self-imposed volatility and leverage, making the inevitable losses more significant than simple, old fashioned snake oil.

It took a very long time. Long enough for some retail brokers to get themselves involved in trading cryptocurrency CFDs which in some cases cost them tens of millions of dollars in a short time. FinanceFeeds is privy to inside information that showed losses at two firms of $17 million and $40 million respectively within one week at the end of 2017, one of which was a publicly listed entity which hid this unfortunate scenario by reporting the entire year in one quarter, presumably to avoid shareholder furore.

Then came all the ICO fraud, and inability to withdraw from various ‘exchanges’ that the proponents who all came out of nowhere with no industry expertise and were uttering the word ‘crypto’ at every opportunity with almost foaming-at-the-mouth obsession, all of which are now either under sanctions, in jail or on the run.

Surely by now, with the penny finally dropping at the FCA, the world would finally begin to understand that any digital currency is a fraud.

There is to be no technology revolution, no bitcoin-fueled empowerment of the masses and no removal of the properly established banks and non-bank trading entities in the name of non-existent, unbacked garbage peddled under the false premise of distributed blockchain ‘fintech’.

Surprisingly, some self-elected industry bodies do not give up so easily, today’s example being Global Digital Finance (who?) which calls itself an industry membership body that promotes the adoption of best practices for cryptoassets and digital finance technologies, whatever that means other than the advocating of allowing members of the public to be defrauded.

This morning, this body of ne’erdowells claims that the Financial Conduct Authority’s (FCA) recent decision to ban the sale of derivatives and exchange traded notes (ETNs) linked to cryptoassets to retail customers is a huge setback for the UK in maintaining its dominant position as a global fintech hub.

Seriously? Surely they mean that it is quite the opposite, and represents a welcome and long overdue step toward protecting the entire electronic trading and financial services sector in the United Kingdom along with its clients from crypto villains.

Global Digital Finance bizarrely asserts that the FCA’s decision has left many in the cryptoasset sector questioning the regulator’s willingness to collaborate with them and listen to the views of key market participants.   Other key points raised by GDF include:

  • It questions the FCA’s decision to ban these products when no similar steps have been taken in Europe, the U.S. or Asia.
  • It is critical of the regulator for ignoring its own research findings and the overwhelming majority of responses to its consultation on the cryptoasset investment sector.  A survey conducted by the FCA, published this year noted that ‘the majority of cryptoasset owners are generally knowledgeable about the product, are aware of the lack of regulatory protection afforded and understand the risk of price volatility’.
  • GDF points out that recently Germany’s regulator BaFin approved a bitcoin exchange traded fund (ETF). BTCetc Bitcoin ETP (Ticker: BTCE) is an exchange traded cryptocurrency (ETC) that tracks the price of bitcoin. It is 100 percent physically backed by bitcoin, and for every unit of BTCE, there is bitcoin stored in regulated, institutional-grade custody. BTCE was the first cryptocurrency ETP admitted to Xetra to be cleared centrally
  • Other regulators, notably the U.S. CFTC, has been safely overseeing regulated crypto derivatives markets for nearly three years with products that offer a reliable basis for valuation. These markets are accessible to retail as well as professional investors. Given the strong ties and coordination among global agencies, it is surprising a forward-looking regulator such as the FCA did not find itself able to adapt these safeguards to the U.K. market.

This is rather odd, and tenuous. It would be very likely that an approach by any retail investor in cryptocurrency related assets would be met with a cold shoulder by the CFTC in the United States, and the CFTC has been one of the leading forces in banning the majority of crypto scams, including sending FBI agents to arrest perpetrators in countries outside the United States and repatriating them for trial.

When the FCA launched its consultation it said it believed that retail consumers cannot reliably assess the value and risks of derivatives (contracts for difference, futures and options) and exchange traded notes (ETNs) that reference certain cryptoassets. This is due to the:

  • inherent nature of the underlying assets, which have no reliable basis for valuation;
  • prevalence of market abuse and financial crime (including cyberthefts from cryptoasset platforms) in the secondary market for cryptoassets;
  • extreme volatility in cryptoasset prices movements;
  • inadequate understanding by retail consumers of cryptoassets and the lack of a clear investment need for investment products referencing them.

The regulator said back then it estimates a ban could reduce harm by £75m to £234.3m a year for retail investors.

Any ‘industry body’ that calls this into question perhaps should call its own existence into question.

Lawrence Wintermeyer, executive co-chair of Global Digital Finance is sticking to his guns by saying “Some may wish to argue the moot point that the FCA’s ban is good for retail customers, good for the financial services market, and good for the U.K. We would most certainly disagree with this. What is unarguable is that digital is global, and that digital finance is global. The effectiveness of jurisdictional bans of this nature is questionable in a world where customers can find the products and services they choose on the internet, wherever these products and services come from, and this choice often drives customers offshore.”

It is FinanceFeeds opinion that the FCA took the absolute right decision.

The hyperbole last month in the advent of the ban went along the lines of that taking into account the growing trend of blockchain integration into a broad spectrum of industries, it is becoming obvious that the financial industry will be leading the adoption charge. The advantages offered by blockchain as a financial off-ramp and a processing infrastructure that surpasses the capabilities of traditional systems are making the technology a prime candidate for investments by major payment processors. It will take the giants some time to embrace the power of blockchain in full, but it is obvious that the time is nigh.

You have as much chance of this as you have of seeing Shergar.

Given the FCA’s quite justified disdain for anything relating to digital assets, the banning of CFD trading with crypto assets today was unsurprising, but rather late, given the UK’s firm stance on such fraudulent schemes.

The trend of partnerships between traditional financial entities and blockchain platforms to issue cryptocurrency debit cards is still not on the rise. Rather oddly, earlier this year Visa partnered with FinCEN-registered crypto exchange CoinZoom and decentralised finance platform Eidoo.

Who uses these? That’s right. Nobody. It is likely that any broker that went down this route would find that their bank would terminate its relationship with them on grounds of anti money laundering rules.

It should be noted that Visa’s role in the cryptocurrency industry is not limited to partnerships with promising projects. In May 2020, the USPTO (the United States Patent and Trademark Office) announced that Visa Corporation had applied to develop a digital currency using blockchain technology. The currency is said to include assets such as the US dollar, euro, pound and yen. This technology will use a centralised computer that receives requests with a serial number and physical currency denomination, according to the USPTO.

Yes, the FCA has finally banned crypto CFDs. The question is, when will its payments arm ban crypto payments and put all of this hot air to rest where it belongs?

The NFA a few years ago outlawed the use of credit cards and other online payment methods for depositing client money into trading accounts among US brokerages. The only way is via bank transfer.

It was stated by those with a vested interest that Visa became one of the first international corporations to invest in the crypto industry, becoming the first company to hire blockchain developers back in 2018. Today, the company is continuing to expand the department of specialists working with digital technologies. It has become clear that large financial companies are starting to take blockchain more seriously.

In May 2020, the USPTO announced that Visa Corporation had applied to develop a digital currency using blockchain technology.

The first cryptocurrency debit cards began to appear in the same year. Striking examples are the Visa MCO Cards by Crypto.com and the Flexible Crypterium Card. But not everything is as smooth as it may seem, as the customer needs cryptocurrencies to buy a cryptocurrency-powered card. More specifically, from 50 to 50,000 MCO tokens are required in order to order such a card. The given crypto debit card is said to be very useful for Crypto.com users, as they are able to receive cashback and take advantage of special bonuses.

Those attempting to get a last ditch attempt at convincing brokers that they need to use cryptocurrency as a method of transacting client funds via Visa, PayPal or Mastercard may well have seen the tenuous attempt by Crypterium last week to demonstrate that the future of payments for online services is via digital assets. Well, it is definitely not.

It is likely that other regulated regions will go the same route and rightly so.

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