FCA delivers grave warning on dangers of bitcoin contracts for difference

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The UK's top financial regulator today warned Britons of the dangers of investing in cryptocurrency contracts for difference (CFDs).

The Financial Conduct Authority (FCA) issued a statement calling the investments "extremely high-risk, speculative products".

CFDs allow investors to bet for or against the price of a raft of financial and non-financial products. Using leverage, they are structured to allow investors to be exposed to risk in excess of their original stake. The sector is currently the subject of a review by European authorities, which is considering placing restrictions on leverage levels.

Read more: Bitcoin drops to lowest level this month as price falls below $6,300

Bitcoin prices have been extremely volatile in recent in months hitting highs of almost $7,500 last week before sliding $1,600 in a matter of days.

The FCA is concerned that the volatility of cryptocurrencies combined with CFD leverage could lead to investors suffering huge losses.

Bitcoin price volatility

(Source: Coindesk)

Binary options

Meanwhile, in a separate statement, the FCA said it will take control of regulating binary options from 3 January 2018.

Binaries, which have similar characteristics to CFDs and are often offered on CFD platforms, have historically been regulated by the Gambling Commission if the firm offering them has gambling equipment in the UK. They enable investors to bet on financial and non-financial products but with time periods often being very short.

The FCA said its data suggests a majority of consumers lose money when making bets and that consumers find it difficult to make sustained profits over a series of bets.

Read more: Kicking the can down the road: FCA delays decision on spreadbetting reforms

Full story: FCA delivers grave warning on dangers of bitcoin contracts for difference: City A.M.

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