It seems that cryptocurrency cannot shake every aspect of its reputation.
Cryptocurrency Is Being Targeted by the FCA
The Financial Conduct Authority (FCA) in the U.K. has released a statement saying that it is considering a ban on all cryptocurrency-related products, as they are too volatile and therefore unfit for small-time investors. This is an argument that we’ve been hearing for some time, and one we’ll likely continue to hear until assets like bitcoin, Ethereum and Litecoin fully stabilize.
What can be said about crypto’s volatility is that it has calmed down somewhat in 2019. Bitcoin, for example, after trading at relatively low prices throughout all of 2018 and the first quarter of this year, has suddenly burst in price and began trading in the $5,000 range last April. From there, it incurred several additional spikes that saw it rise to approximately $6,000, then $7,000, then $8,000. At press time, it is trading for over $11,000 and more than doubled its price over the last three months.
And yet, despite this good news, bitcoin is still being hit from all angles by volatility. Just last week, the currency was trading for roughly $13,600. Thus, the price has fallen by roughly $2,000 in just a matter of days. For the most part, this behavior appears to be a simple (and relatively normal) correction, but price swings still seem to be part of the crypto atmosphere.
Christopher Woolard, executive director of competition and strategy with the FCA, explains:
As with our work on the wider CFD and binary options markets, we will act when we see poor products being sold to retail customers. These are complex contracts built on top of complex assets. Most consumers cannot reliably value derivatives based on unregulated crypto assets. Prices are extremely volatile and as we have seen globally, financial crime in crypto asset markets can lead to sudden and unexpected losses. It is therefore clear to us that these derivatives and exchange-traded notes are unsuitable investments for retail customers.
To combat the volatility and price swings one often sees with crypto, stable currencies have become relatively popular over the past year. Stable coins are often tied to fiat currencies or assets like gold that have more sturdiness in the financial space. Thus, these coins are often less prone to fluctuations.
Are Stable Coins the Answer?
At the same time, crypto is designed to give investors a chance to significantly build their wealth. Stable currencies, given their lack of movement, ultimately get in the way of this ideology, so while they do offer more safety when it comes to investing, their lack of risk prevents one from building their net worth at a quickened pace.
At press time, Woolard is warning everyone against the utilization of Libra, Facebook’s new cryptocurrency, which he says is likely to stir heavy regulation.
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