Andrew Bailey, Chief Executive of the UK’s Financial Conduct Authority (FCA), has reached a decision not to regulate Bitcoin. The decision is not indicative of the approval of investments in Bitcoin, despite the statement appearing to give off a positive sentiment regarding the cryptocurrency.
According to the BBC, Mr. Bailey and the FCA classify Bitcoin as a commodity, rather than a currency, as it is not represented by a government or a central bank of any kind. Commodities are not overseen by the FCA, and therefore setting constraints on Bitcoin would technically fall outside its legal responsibilities and jurisdiction.
In order to change the current guidelines that state which assets are overseen by the FCA, parliament would have to make changes to legislation that would grant it these responsibilities. We have already seen regulatory bodies from around the world take charge in setting restrictions around cryptocurrency trading.
Mr. Bailey’s statement provides valid points against the safety of Bitcoin as an investment. High volatility levels are the first indicator of a risky asset. Moreover, it is incredibly difficult if not impossible to gauge the driving force behind the pricing. Relative to traditional commodities, it becomes much more difficult to analyze the asset in a lengthy and rigorous manner that can yield trustworthy conclusions.
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Another major difference between Bitcoin and other ‘commodities’ is the fact that the supply of Bitcoin is fixed. This differs from common commodities, such as cotton, soybeans, and coffee, where supply is altered on a continuous basis, due to varying growth rates and quantities supplied from around the world.
The underlying message Mr. Bailey was attempting to convey is that while the Bitcoin does not fall under the regulatory responsibility of the FCA, it is a highly volatile and unsafe investment. More specifically: “If you want to invest in Bitcoin be prepared to lose your money – that would be my serious warning.” He went on to compare investing in Bitcoin to gambling. It really does not get any clearer than that.
We have already seen the FCA issue warnings in the past, regarding the safety of trading cryptocurrency CFDs through brokers. Bailey is pouring on a very negative sentiment surrounding Bitcoin and cryptocurrency investments. However, many who have already invested in Bitcoin can clearly provide evidence of successful and prosperous deals that have yielded tremendous profits in the past.
After all, recent surges in demand have caused its price to reach new heights. It could just be that Mr. Bailey is attempting to limit the current frenzy surrounding Bitcoin, in an attempt to curb the potential devastation in the event of a future price crash. In the end, Bitcoin remains unregulated, and there is not currently a timeline for when that would change.