The UK FCA (Financial Conduct Authority) is falling into line with other financial regulators and softening its stance on investing in digital currencies as bitcoin hits a record high.

From April 2024, issuers will be able to list exchange traded products linked to Bitcoin and Ethereum coins on the London Stock Exchange.

The FCA banned crypto-related derivatives in 2021 on concerns over the amount of leverage or borrowing available to consumers, with some providers offering as much as 100 times leverage.

The ban drew criticism from crypto industry representatives who argued the UK could not become a leading centre for digital assets if it did not allow retail investors regulated access to popular digital coins such as Bitcoin.

The US SEC (Securities and Exchange Commission) approved the first Bitcoin ETF (exchange traded fund) in January this year, which led to a huge influx of investors who see the decision as legitimising Bitcoin as a mainstream asset.

Reflecting this increased demand, BlackRock’s Bitcoin ETF reportedly took in $250 million on 27 February, the second highest daily inflow for any ETF. Collectively the new spot Bitcoin has attracted $10 billion of inflows since launch.

US approval follows similar regulatory decisions in the EU, Australia, Canada and Hong Kong.

Increasing institutional demand has been a factor in the rising price of Bitcoin, which hit new all-time highs this week of over $72,000 taking its gains so far in 2024 to over 60%.

After crashing 75% from its November 2021 high, the cryptocurrency has surged more than four-fold in just 16 months.

Another factor driving the price has been a so-called ‘halving event’ which happens every four years and reduces the number new coins created by half.

The reduction in new Bitcoin effectively creates a supply shock which has historically spurred significant price increases, notes Nigel Green, chief executive of deVere Group.

The FCA believes increased insight and data stemming from a longer period of trading history allows professional investors to make a better-informed decision on whether cryptocurrencies meet their risk appetite.

It is important to point out that the softening tone does not apply to retail investors where the ban on the sale of cryptocurrency derivatives remains in place.

This is because the regulator believes they are ‘ill-suited for retail consumers due to the harm they pose’.

The London Stock Exchange said listed cryptocurrency products could not be leveraged. In addition, they must be kept in an offline vault and held by custodians subject to anti-money laundering rules in the UK, EU, Jersey, the US or Switzerland.

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