Following the announcement by the Financial Conduct Authority (FCA) regarding a change in rules allowing securities backed by cryptocurrency to be traded in London by institutional investors, the price of bitcoin soared to unprecedented heights.
Bitcoin witnessed a surge from below $69,000 to over $72,000 within minutes after the FCA declared its stance, permitting requests from the London Stock Exchange and other authorised exchanges to list exchange-traded notes backed by crypto assets.
This surge propelled the popular cryptocurrency into uncharted territory, surpassing the previous peak of $64,000 recorded in November 2021. Notably, bitcoin has quadrupled in value from its low of less than $17,000 reached in January 2023.
The surge in bitcoin’s price comes amidst increased interest from buyers, spurred by the approval of 11 different exchange-traded funds backed by bitcoin by the US Securities and Exchange Commission, which commenced trading in January. Additionally, anticipation surrounding the scheduled “halving,” slated for next month, where the reward for mining new coins is to be halved, has reignited buyer enthusiasm.
Bitcoin, as a decentralised digital currency, has captivated financial markets since its inception in 2009. While proponents tout its incorruptibility and finite supply, sceptics raise concerns about its association with illicit activities and the potential existence of a speculative bubble.
Despite challenges faced by the sector, including the fraud conviction of Sam Bankman-Fried, founder of the collapsed FTX exchange, and regulatory scrutiny, demand for cryptocurrency has surged once again.
The FCA’s relaxation of its previous resistance to cryptocurrency signifies a milestone, paving the way for mainstream crypto-backed securities to be traded by institutional investors in London in the near future. The London Stock Exchange promptly announced its readiness to accept applications from financial institutions interested in creating exchange-traded notes linked to bitcoin and ethereum.
However, it’s important to note that while institutional investors may soon have access to crypto-backed securities, on-exchange trading of bitcoin securities by private investors remains prohibited. The FCA has reiterated its stance that cryptocurrency is “ill-suited for retail customers,” cautioning investors about the risks involved.
The regulatory landscape surrounding cryptocurrency remains dynamic, reflecting a delicate balance between fostering innovation and safeguarding consumers. As the UK seeks to position itself as a leading hub for crypto assets, ongoing dialogue between regulators, industry stakeholders, and government bodies will be crucial in shaping the future of this burgeoning sector.
