The Financial Conduct Authority (FCA), the UK's top financial regulator, has continued its time-honored tradition of warning British consumers that if they dabble in bitcoin, they "should be prepared to lose all their money."
Its most recent reprimand came in the form of a press release declaring that all bitcoin ATMs in the country are operating illegally because their owners have not been subjected to regulatory scrutiny.
More on that in a moment. But first, consider how consumers would have fared if they had listened to the FCA on any of the previous occasions when it discouraged people from using bitcoin – the world's oldest, largest, and most secure decentralized monetary network.
The well-known phrase was first used on December 14th, 2017 – when bitcoin was trading at $16,405 – in remarks by then-FCA chief executive Andrew Bailey (who later became governor of the Bank of England, the UK's central bank). "If you want to invest in bitcoin, be prepared to lose all of your money," he told the BBC. Bitcoin has increased by 137 percent since then, with a market price of $38,900 at the time of writing.
As a result, if consumers followed Bailey's advice, they would have missed out on the opportunity to more than double their money.
One year later, on October 29th, 2018, the FCA issued a report warning that "cryptoassets have no intrinsic value and investors should thus be prepared to lose all of the value they have invested." On that day, Bitcoin was trading at $6,266 per coin, implying that anyone who listened to the FCA missed out on a 521 percent gain.
It only gets worse. On March 7th, 2019, FCA executive director Christopher Woolard concluded that cryptocurrencies "may not be well understood by many consumers" and that anyone "investing in them should be prepared to lose all of their money" after conducting two research studies into UK consumer attitudes toward cryptocurrencies.
Unfortunately, it appears that Woolard's comprehension was lacking. On that day, Bitcoin was trading for only $3,857. Anyone who listened to his warning missed out on a staggering 909 % profit.
In 2020, the FCA continued to issue research notes and press releases about bitcoin, but for some reason avoided instilling fear of a price crash. That saved it some embarrassment, as the cryptocurrency's value increased by 310 percent during the year, rising from $7,175 on January 1st to $29,403 on December 31st.
In 2021, however, the regulator was back to its old tricks. At least three official communications on the FCA's website warned Brits that they are likely to get rekt (my paraphrasing) if they buy bitcoin: this press release on January 11th (market price $35,450); this research note on June 17th ($38,110); and this speech by FCA chairman Charles Randell on September 6th ($52,719).
Congratulations if you followed Randell's advice; you are among the small percentage of consumers who would have benefited from listening to the FCA about bitcoin. Since Randell's speech, the cryptocurrency has lost 26 percent of its value (despite surging 31 percent to an all-time high of $69,000 in the weeks immediately following his remarks).
I don't want to be unjust to the FCA. They do vital work to protect UK consumers from scams and predatory financial practices that can easily ruin lives. Of course, I anticipate them to be conservative in their advice.It goes without saying that I support any effort they make to highlight the risks of investing in complex financial instruments, particularly leveraged products, as well as failing to scrutinize service providers and research risk-management strategies.
But, to put it bluntly, that is not what they are doing when they disparage bitcoin.
A respectful rebuttal
Bitcoin has already demonstrated that it is not a high-risk or opaque investment.
Bitcoin, on the other hand, has maintained a long-term upward trend in value over its entire 13-year lifespan (during which it has become, by far, the most profitable investment of modern times). It enables holders to self-custody their funds, removing the need to rely on central authorities or service providers. And, obviously, unless you explicitly choose to make it one, it is not a leveraged product.
Bitcoin is protected not by people, banks, or governments, but by mathematical laws. It employs public-key cryptography, a type of encryption that makes your password roughly as easy to guess as finding a specific grain of sand by chance throughout Greece.
Of course, other forms of security exist, and bitcoin excels in them as well. Is it possible that it could be hacked? No. The bitcoin proof-of-work system is so energy-intensive that any would-be hacker – say, the US government – would need to spend an estimated $15 billion to even attempt a "51 percent attack" (that estimate will continually rise as the network grows). In theory, if such an attack is successful, it could bring the network down. It wouldn't, however, prevent a parallel network from launching the next day based on a snapshot of the pre-hacked blockchain. In that case, another $15 billion would be required to try again. And so forth.
What about the peace of mind that your funds will not be diluted?
Again, bitcoin's decentralized consensus mechanism – which is overseen and enforced by miners – ensures that only 21 million bitcoins will ever exist. Is there a fixed supply of dollars, euros, and pounds? No. What about real estate? No. Public or private equity? No. Gold? Almost, but not quite.
Is there an ulterior motive?
All of this begs the question: why is the FCA, which has a statutory duty to protect consumers, so hell-bent on instilling fear about bitcoin? Why doesn't it warn cash holders, property owners, and stock market investors to "be prepared to lose all of their money"?
Take a look at the regulator's most recent announcement about bitcoin ATMs, and the skewed narrative is clear.
The FCA claimed that the operators of these cashpoints, of which only 56 are in operation in the UK, endanger consumers because they are not registered with the regulator, and thus their compliance with UK money-laundering legislation is not upheld. That may or may not be a valid concern about the specific operators of these 56 machines; I'm not in a position to investigate their compliance.
What I do know is that declaring that "consumers should not use" bitcoin ATMs and implying that the technology is incompatible with anti-money-laundering regulations is grossly misleading.
There are over 36,000 bitcoin ATMs in operation worldwide, with 88 percent of them located in the United States. All of the largest operators adhere to internationally recognized Know Your Customer (KYC) regulations, which serve as the foundation of anti-money-laundering safeguards. If they did not, they would be unable to obtain licenses to operate in highly regulated jurisdictions such as the United States. All of them also limit the size of transactions that individual users can perform, making the machines ineffective for money laundering.
The FCA expressed concern about the UK bitcoin ATM sector's immature scale and unregulated nature. This is deceptive.The sector is only immature and unregulated because UK regulators, unlike their US counterparts, have purposefully created a hostile environment for operators, discouraging them from entering the UK market.
And with that, we've come full circle. Why is the FCA so opposed to an ecosystem that has empowered consumers all over the world and is openly supported by regulators in financially sophisticated countries like the United States and Switzerland?
Is it taking this stance because of its close working relationship with the Bank of England, whose ability to influence consumer behavior (via negative real interest rates) is being undermined by bitcoin? Is it because the FCA's annual budget of £636 million ($829 million) is entirely funded by legacy financial entities – banks, mutual societies, and financial advisors – the vast majority of which correctly see bitcoin as a threat to their profitability?
Only the FCA has the authority to answer those questions. What is unarguable is that its bearishness has been spectacularly incorrect for several years, costing the unlucky consumers who listen to it vast sums of money.
It's time for the UK's top financial regulator to stop using childish language about bitcoin and remember who it has a statutory obligation to protect.
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