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Crypto ownership doubles in UK before new rules kick in

Crypto ownership more than doubled in the UK last year, the Financial Conduct Authority said on Wednesday, as it announced an October start date for its clampdown on mis-selling in a sector often dubbed finance’s “Wild West”.

Almost one in 10 people surveyed by the UK’s top financial regulator owned cryptocurrencies in 2022, more than twice the number a year earlier, despite regulators warning that crypto investors should be prepared to lose their entire outlay.

“It is up to people to decide whether they buy crypto . . . Our rules give people the time and the right risk warnings to make an informed choice,” said Sheldon Mills, the FCA’s head of consumers and competition. He added that its crackdown on crypto group advertising would begin on October 8.

The regulator’s update comes in a bruising week for the crypto industry after two of its largest exchanges, Binance and Coinbase, were sued by the US Securities and Exchange Commission over alleged securities law violations.

In recent months, the UK has proposed a sweeping new regulatory regime for crypto where rules governing the industry will be brought more closely into line with those for traditional financial services. A cross-party group of MPs recently criticised the policy, suggesting instead that crypto be overseen as a form of gambling.

Some 36 per cent of 2,000 adults polled by the FCA said they had seen or heard crypto adverts, while 25 per cent of those who had not previously been involved in crypto became “curious” as a result of being exposed to advertising campaigns.

The FCA’s crypto marketing regime will require companies to use risk warnings and offer a “24-hour cooling-off period” for customers. Incentives for customers to “refer a friend” will also be banned. 

The regime will apply to all crypto asset businesses marketing to UK customers, regardless of whether they are based in the UK or overseas. “The crypto industry needs to prepare now for this significant change,” Mills said.

Harry Eddis, a lawyer at Linklaters, said the rules would have a “significant impact” on the UK market by making it harder for people to buy crypto currency. 

The FCA currently regulates crypto firms for money-laundering compliance only. Its research found that 28 per of those who do not use crypto would be “more likely” to buy it if the market and activity were regulated to a similar standard as traditional financial services.

The increase in ownership of crypto assets has come despite a tumultuous period for the market, which suffered a crisis of confidence last year that resulted in the collapse of former industry bellwether FTX.

The research also showed almost four-fifths of those buying crypto used disposable income to fund the purchases, 6 per cent borrowed money, and the rest used savings or gains from crypto sales.

The mean value of their investments was put at just under £1,600, with 40 per cent holding less than £100. The most common reason given for buying crypto, as stated by 40 per cent of respondents, was “as a gamble”.

The price of the popular cryptocurrency Bitcoin, which peaked at more than $64,000 in November 2022, on Wednesday fell nearly 3 per cent to $26,484.

A renewed crackdown on crypto marketing follows a blitz of American enforcement cases this week.

The SEC on Monday filed a lawsuit against Binance, alleging the world’s largest crypto exchange mixed billions of dollars of customer cash with a separate trading firm owned by its chief executive Changpeng Zhao. 

On Tuesday, the SEC sued Nasdaq-listed rival exchange Coinbase, alleging it violated US securities law by failing to register as a broker, national securities exchange or clearing agency.

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