FCA Bans Bitcoin and Ethereum ETNs and Derivatives

The British Financial Conducts Authority (FCA) has banned crypto Exchange Traded Notes (ETNs) and derivatives.

They say cryptos are volatile, have “no reliable basis for valuation,” there’s “inadequate understanding” of cryptos by “retail consumers” and the best of them all there is a “lack of legitimate investment need for retail consumers to invest in these products.”

Numerous studies have ascertained bitcoin in particular but also eth has some desirable qualities from an investment perspective.

In particular they are a diversifier in an investment portfolio as they do not correlate with other asset classes like stocks or gold.

Bitcoin also has been found to be a hedge against geopolitical risks which means returns can be higher or losses can be lower in an investment portfolio with bitcoin.

Due to that, there’s a specific need for a bitcoin ETN as that’s the only available way to access bitcoin through a stocks portfolio or a pensions fund.

That cryptos are volatile is well known but Tesla and plenty of other stocks are at times just as volatile.

Retail investors moreover don’t understand many of the investments they buy, like the ETFs or certain stocks and much else, which is why usually they have a financial advisor.

Finally, it can easily be argued nothing has a “reliable basis for valuation” as many bubbly stocks or house prices attest.

There are proxy ways to get some idea of when something is overvalued or undervalued however, with such proxy way for bitcoin being user growth estimates and activity estimates.

But, like with stocks and much else, speculation can get way ahead of fundamentals, with price usually inherently unpredictable as otherwise investing would have no risk and thus no reward.

Meaning this ban is probably more political than out of any concern about protecting investors especially where the bitcoin and ethereum ETNs are concerned.