European markets close in the red
And finally, European stock markets have begun the new week with chunky falls, although nothing as dramatic as bitcoin!
In London, the FTSE 100 has closed 74 points lower at 6798 points, a drop of 1.1% today.
That still leaves the Footsie up over 5% this year, after last week’s roaring start.
Covid-19 fears hit stocks, with catering firm Compass down 4.3%, property firm Land Securities off 3.6% and drinks producer Diageo dropping 2.6%. They all suffer from the pandemic lockdowns, and their impact on hospitality, pubs and restaurants, and offices.
JD Sports ended the day up 3.8%, having hit record highs today after predicting profits would beat expectations.
Germany’s DAX and France’s CAC dropped by 0.8%, while Spain’s IBEX lost 0.6% and Italy’s FTSE MIB dipped by 0.3%.
David Madden, analyst at CMC Markets UK, says health concerns have encouraged dealers to book profits today.
Last week, stock markets enjoyed very bullish moves on the back of the belief that Joe Biden’s administration will reveal new stimulus. The FTSE 100 was sent to a 10 month high while the DAX registered a new record high.
Relatively mild worries about Covid-19 cases are weighing on the mood today. The scale of the losses in stocks suggests that traders would prefer to take some money out of the markets as opposed to panic selling.
On the FTSE 100, mining stocks like Rio Tinto, BHP Group and Anglo American are some of the largest fallers in terms of index points. Housebuilders, oil, hospitality, travel and transport stocks are in the red too.
Bitcoin, meanwhile, has now rebounded to $32,200 -- a drop of nearly $8,000, or 20%, compared with Friday night.
That’s all for today. Here’s our updated news story on the FGA’s crypto warning, and bitcoin’s tumble:
Goodnight. GW
Some late news: British retailer Marks & Spencer is buying the Jaeger fashion brand from the administrators of Jaeger Retail Limited.
Reuters explains:
M&S said it is in the final stages of agreeing the purchase of product and supporting marketing assets from the administrators and expected to fully complete the deal later this month. No purchase figures were disclosed.
Before going into administration Jaeger was part of Philip Day’s stricken Edinburgh Woollen Mill Group.
M&S confirms it has bought Jaeger brand as expected. Not expected to take any stores on. In line with its strategy to sell complementary third party brands like Nobody’s Child, Ghost and ELC although this is first clothing acquisition in a while...
— Ashley Armstrong (@AArmstrong_says) January 11, 2021
Earlier today, a key Bank of England policymaker argued that cutting the UK’s official interest rate below zero would be good for growth and could be done without crippling commercial banks,
Silvana Tenreyro, one of the nine members of Threadneedle Street’s monetary policy committee, said negative rates had worked in other countries and would assist the UK’s recovery from its Covid-19 slump.
Tenreyro explained:
“My overall assessment is that, while we can never have complete certainty, negative interest rates should with high likelihood boost UK growth and inflation.
Cutting bank rate to its record low of 0.1% has helped loosen lending conditions relative to the counterfactual (of no policy change), and I believe further cuts would continue to provide stimulus.”
Our economics editor Larry Elliott has the full story here:
Near 30% loss from last week’s high...
— Lawrence McDonald (@Convertbond) January 11, 2021
BITCOIN EXTENDS ONE-DAY SLIDE TO 20%; DROPS BELOW $31,000- Bloomberg
Over in parliament, chancellor Rishi Sunak has warned that the UK economy will get worse before it gets better, and that the “road ahead will be tough.”
Sunak told MPs:
“While the vaccine provides hope, the economy is going to get worse before it gets better. Many people are losing their jobs, businesses are struggling, our public finances have been badly damaged and will need repair.”
However, Sunak didn’t have any fresh measures to combat the slump, having announced a £4.6bn relief package for UK retail and hospitality sectors just last week.
Our Politics Liveblog has more:
Bitcoin drops through $31k
Bitcoin just took another lurch lower, as today’s violent selloff shows little sign of abating.
The cryptocurrency has fallen through the $31,00 mark, trading as low as $30,200 a few minutes ago, before recovering a little.
At those levels, bitcoin has lost over $10,000, or more than 25% of its value, since Sunday morning UK time, when it was trading at around $41,000.
It’s still only a one-week low, though, and this selloff doesn’t seem to be causing wider ructions in the markets....
Is there any 'good news' relating to the bitcoin collapse today? Yes, even if the asset is down >25% from the high over the weekend, it is not really having any clear impact on other assets. US equities are now on the way back to flat, even if bitcoin still heading lower. pic.twitter.com/N7kxxCh7Rp
— Jens Nordvig (@jnordvig) January 11, 2021
Afternoon summary
Time for a quick recap.
In a timely warning, the FCA said:
Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money. If consumers invest in these types of product, they should be prepared to lose all their money.
As with all high-risk, speculative investments, consumers should make sure they understand what they’re investing in, the risks associated with investing, and any regulatory protections that apply.
Bitcoin has plunged from its record highs, tumbling around 20% today to around $32,000, having risen over $40k on Friday night.
Stock markets have also dropped back, having rallied sharply last week, amid concerns over the spread of Covid-19. The FTSE 100 is currently down 1% in late trading.
Shares in Twitter dropped sharply after it permanently suspended Donald Trump, following the attack on the US Capitol last week.
The US dollar has strengthened, though, as traders ponder whether plans for huge new stimulus packages could lift inflation and employment, meaning monetary policy could be tightened faster than expected.
Passengers at Heathrow down by 73% in 2020
Heathrow has suffered its quietest year in decades, due to the pandemic.
Transport correspondent Gwyn Topham explains:
The number of passengers at Britain’s biggest airport slumped by 73% in 2020 to the smallest annual total since 1975 due to the travel restrictions caused by the Covid-19 pandemic.
Just 22.1 million travellers passed through Heathrow last year, 59 million fewer than in 2019. December figures were higher than November, rising to 1.1 million as Britain came briefly out of lockdown, but finished 83% below the previous December as the new variant of Covid-19 led to more border closures and halted many flights.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, reckons the FCA is concerned that the crypto market is running dangerously out of control:
‘’Bitcoin’s rapid ascent and descent in just a few days underlines just how volatile the cryptocurrency is. It lost as much as 20% of its value over the last 24 hours, before regaining ground slightly, amid reminders from the UK’s financial watchdog about the risks of investing in firms offering investments in cryptoassets which promise high returns.
There is much speculation that Bitcoin will become more mainstream, especially with more institutional investors becoming involved, but the future of cryptocurrencies remains highly uncertain. Bitcoin’s price is being driven primarily by future price speculation rather than an underlying use-case. The Financial Conduct Authority clearly believes the crypto Wild West could be running out of control, and is warning that consumers risk losing all their money if they succumb to promises of fast and high returns.
As Bitcoin fluctuates, so too does investor interest in firms which provide the technical platforms to mine cryptocurrencies, such as Argo Blockchain. It has been one of the most viewed shares on the HL platform since the start of the year but today saw its share price mirror Bitcoin’s fall. Given the volatile nature of cryptocurrencies, investing in in crypto-miners should still be considered high risk and only undertaken with a well-diversified portfolio.’’
Anatoly Crachilov, CEO of digital asset manager Nickel Digital, argues that today’s bitcoin tumble is the kind of behaviour you expect in an “evolving asset class” - and one best left to the professional investors.
Bitcoin often exhibits large upside swings that tend to be followed by corrections. This is a normal behaviour for a new technology in the early stage of its adoption curve. The price action for such assets is never meant to be a straight line. Only professional investors with a long-term view on the underlying technology should have exposure to this asset class. They also need high-risk tolerance levels and, importantly, never lose sight of the forest for the trees.
Given the immutable monitory policy of Bitcoin protocol, its powerful store-of-value function, and increasing acceptance by the institutional investors, this market is positioned for a fundamental expansion cycle as bitcoin increasingly becomes part of institutional portfolio allocations. Today’s correction, however deep, is just an interim datapoint in the structural multiyear growth of this asset class.”
Shares in Twitter have tumbled by 7% in early trading, as investors react to its decision to permanently suspend Donald Trump’s account.
Twitter banished @realDonaldTrump from its network after the outgoing president’s supporters violently stormed the US Capitol last week, citing the risk of “further incitement of violence”.
That move was welcomed by Democrats and civil rights groups who had longed pushed for tougher action, but enraged Trump’s supporters and conservatives - so the ban could hit Twitter’s active user base.
#Twitter shares down more than 10% on the first day of trading since it suspended Donald Trump's account permanently - no doubt its MAU will take a hit as a result. pic.twitter.com/jxHAHPKDiZ
— Simon Dishman (@SimonDishman) January 11, 2021
Given last week’s shocking events, social media companies are facing the prospect of tighter regulation, given the way that extremists groups have used the internet to spread disinformation and conspiracy theories.
Trump has often threatened to overhaul the Section 230 regulations that grant web giants protection from liability for their users’ content, and it’s possible that Democrats could try to make Big Tech more responsible for their users’ actions.
Updated
Wall Street opens lower
Stocks have opened lower in New York, dragging the US stock market down from Friday’s record highs.
The Dow Jones industrial average has dropped by 161 points, or 0.5%, to 30,936 in early trading.
The broader S&P 500 has dropped by 26 points, or 0.7%, to 3,798 points, while the tech-focused Nasdaq has fallen 154 points, or 1.1%, to 13,047.
U.S. stocks open lower https://t.co/il8kxtTb6h pic.twitter.com/c1iu9zvAtG
— Bloomberg Markets (@markets) January 11, 2021
European stock markets are solidly red today, as the risk-off mood wipes out some of last week’s gains:
Bitcoin falls through $32k as selloff accelerates
Oof! Bitcoin has now lurched below the $32,000 mark, as today’s selloff gathers pace.
That means the world’s most famous cryptocurrency has tumbled by over 20% since Friday night (when it came close to hitting $42,000).
It’s still only the lowest level since last Tuesday, but the speed of this reversal highlights why the FCA is so concerned that investors could incur big losses through ill-advised punts on the crypto market.
As Neil MacKinnon, Global Macro Strategist at VTB Capital, put it:
“Bank of America has described last week’s surge in Bitcoin as “the mother of all bubbles” and the price chart looks like a classic “Eiffel Tower” formation.”
You don’t see many Dr Martens boots on the trading floors (even before the lockdown left many deserted!).
But the Northampton-shire footwear brand is still heading for the City - through a stock market float.
Kalyeena Makortoff explains:
Best known for its 1460 boot featuring its trademark yellow stitching and chunky soles, the company expected to float at least 25% of the business. If the listing is approved, it will be one of first major initial public offerings (IPO) on the UK market this year.
It comes nearly seven years after Dr Martens was bought for £300m by the private equity group Permira. Sales under its ownership have surged, rising from £160m in 2013 to £672m in the year to March 2020.
Bitcoin has taken another stumble - and is now trading at around $33,530 -- some 16% below Friday night’s levels.
The UK stock market has slipped a little further into the red, with the FTSE 100 now down 45 points (-0.66%) at 6,827 points.
Mining companies have jostled their way into the top fallers, with Anglo American down 2.5% and BHP Group down 2.2%.
Commodity prices such as copper, nickel and zinc are down today, following the rise in Covid-19 cases in China, while the stronger dollar will also be a drag.
In a "risk off" start to the US #trading week, S&P #futures are down some 0.5%, the dollar is 0.4% stronger but government bond yields are only very slightly lower.
— Mohamed A. El-Erian (@elerianm) January 11, 2021
The big moves, however, are elsewhere including a 20% 2-day fall in #Bitcoin (chart) and @Twitter under pressure. pic.twitter.com/NLkZOfxqSv
Here’s another chart, showing how the escalating Covid-19 pandemic is dragging Europe’s economy into a double-dip downturn:
These Bloomberg activity charts are getting a bit messy...but a double-dip is (relatively) clear & likely to become more pronounced as Jan/Feb see lockdowns in most of Europe pic.twitter.com/2LU9ktk1ED
— Michael Brown (@MrMBrown) January 11, 2021
With the dollar strengthening, oil has dropped back from its recent highs.
Brent crude is down 1.1% at $55.36 per barrel, having hit its highest levels since the pandemic began last week.
Impressive gains for oil since early November & particularly since beginning of year @Bloomberg @nymex @ICE_Markets pic.twitter.com/OMQub1GeCt
— Liz Ann Sonders (@LizAnnSonders) January 11, 2021
US dollar strengthens
The US dollar is strengthening today, reversing the long decline in recent months that helped to push asset prices - including bitcoin - higher.
The dollar is up around 0.5% today, hitting a three-week high against the euro.
This has also pushed the pound below $1.35 for the first time since the end of December.
#USD +0.46% against other currencies#EURUSD 1.21632 -0.47%#GBPUSD 1.34868 -0.55%#USDJPY 104.152 +0.19%#USDCAD 1.27796 +0.71%#AUDUSD 0.77082 -0.76%#USDCHF 0.89003 +0.53%
— IGSquawk (@IGSquawk) January 11, 2021
A rising dollar often signals investors are getting jumpier, perhaps following the news that more than half a million people are under lockdown in Beijing on Monday as the Chinese government imposed strict measures to stamp out a handful of Covid-19 cases.
But it also follows expectations that president-elect Joe Biden will push through a multi-trillion dollar stimulus package. That would help the US economy recover from the pandemic, pushing down unemployment and lifting inflation....
....and possibly encouraging the US Federal Reserve to pull back some of its own huge monetary stimulus measures which have helped to weaken the dollar and drive the recent stock market rally.
Ricardo Evangelista, senior analyst at ActivTrades, explains:
To a large extent, the greenback’s losses over the last few months are a reflection of investors’ faith in the continuation of the Fed’s dovish monetary policies for the foreseeable future.
However, as the markets digest the recent political developments in Washington, with the Democrats now controlling the Presidency, Senate and Congress, the probability of extensive fiscal stimulus being deployed has grown, which in turn increases the likelihood of a change in stance from the Federal Reserve and an anticipated end to the very low interest rates.
$DXY #DXY US Dollar Index : Breaking the downtrend, the return of dollar strength.. should make equities a little more precarious too... pic.twitter.com/hcyimhWlKm
— Mike Bamber ♫ (@MikeCBamber) January 11, 2021
Having issued its warning today, the City watchdog may soon get its teeth into companies pushing crypto investments, predicts Ian Mason, head of UK Financial Services Regulatory Team at law firm Gowling WLG.
“The FCA has repeatedly warned consumers about investing in cryptoassets, and some consumers may have been encouraged to invest as a result of the recent increase in price of Bitcoin.
We expect the FCA to clamp down on firms offering investments in cryptoassets which have not complied with the increased regulation of these products”.
There’s been growing speculation of late that US regulators could allow bitcoin exchange-traded funds, or ETFs, to be set up - giving investors an easier way to get exposure to the crypto coin.
The SEC has rejected previous proposals, but the increased interest from Wall Street could provoke a change of heart, some suggest.
You’d think that would push bitcoin’s price up. However, there’s also a theory that it would actually be a drag, if investors took money out of Grayscale Bitcoin Trust - a popular way to track bitcoin.
U.S. approval of a Bitcoin exchange-traded fund could weigh on the digital coin’s price in the short term, according to JPMorgan Chase & Co.
That’s because competition from such a vehicle could spark outflows from the Grayscale Bitcoin Trust, the world’s largest traded cryptocurrency fund. The ETF would erode the Grayscale trust’s effective monopoly, sparking outflows and a slide in its premium to net asset value -- which in turn could hurt Bitcoin’s price, strategists led by Nikolaos Panigirtzoglou wrote in a note.
“A cascade of GBTC outflows and a collapse of its premium would likely have negative near-term implications for Bitcoin given the flow and signaling importance of GBTC,” they said Friday.
Crypto update:#Bitcoin 35375.96 -7.04%#Ether 1114.77 -12.29%#Ripple (XRP) 0.2934 -6.92%#BitcoinCash 506.61 -16.05%#EOS 2.7328 -11.43%#Stellar 0.2557 -11.22%#Litecoin 145.42 -14.11%#NEO 23.649 -4.08%#Crypto 10 Index 7965 -10.36%#BTC #ETH #XRP #BCH #XLM #LTC https://t.co/TLswCfDm7Y
— IGSquawk (@IGSquawk) January 11, 2021
Full story: City watchdog warns of crypto risks
Here’s my colleague Kalyeena Makortoff on today’s crypto asset warning from the FCA:
Consumers should be prepared to “lose all their money” if they invest in products that promise high returns from cryptoassets such as bitcoin, the City watchdog has warned.
The Financial Conduct Authority urged consumers to understand what they were investing in and the financial risks involved, given they were unlikely to be protected by UK schemes that help investors reclaim cash when companies go bust.
The FCA said that some crypto investment firms may be overstating potential payouts, or understating the risks.
The advice comes just days after bitcoin surged past the $40,000 (£29,600) mark, having doubled its value in less than a month. The price has since fallen back to about $35,000....
Bitcoin: Be prepared to lose all your money, FCA warns consumers https://t.co/Vfoe6B4FQm
— The Guardian (@guardian) January 11, 2021
Back in the crypto market, bitcoin has clawed its way back to around the $36,000 mark.
That’s more than 10% below its closing levels on Friday night, and 15% off the record high of nearly $42,000s set earlier that day.
But that still leaves bitcoin up over 20% since the start of the year....
Retail chain JD Sports has shrugged off the pandemic, and hiked its profit forecasts despite shutting many of its stores during lockdowns.
JD, which is Britain’s biggest sportswear retailer, told the City that profits for the last year will be “significantly ahead” of market expectations -- at ‘at least’ £400m, versus forecasts of around £295m.
Total revenues for the last twenty two weeks of 2020 were up over 5%, as consumers “readily switched between physical and digital channels”.
But JD also warns that Covid-19 means UK stores will probably remain shut until at least Easter.
Looking ahead, it is clear that operational restrictions from the COVID-19 pandemic will also be a material factor through at least the first quarter of the year to 29 January 2022. Whilst we are confident that we have the proposition to continue to attract consumers throughout this period, the process to scale down activity in stores and scale up the digital channels, often at extremely short notice, presents significant challenges. We are indebted to all of our colleagues in our different territories who have had to adopt new ways of working.
Under normal circumstances, we would be confident that the results for the forthcoming year to 29 January 2022 would show a strong improvement on the current year. However, given the ongoing uncertain outlook with stores in the UK likely to be closed until at least Easter and closures in other countries possible at any time, our current best estimate is that the Group headline profit before tax for the full year to 29 January 2022 will be 5% to 10% ahead of the current year.
Shares are up 4.6% this morning at 889p, topping the FTSE 100 risers, and briefly traded over 900p at a new all-time high.
Royal Mail has appointed a former Ocado executive as its new boss, putting him in charge of a sweeping overhaul of the postal business.
Simon Thompson, who was already a non-executive on the Royal Mail board and worked on the NHS test and trace programme, is stepping into the role immediately.
The 54-year-old previously served as chief product officer at Ocado. He also held senior roles at Apple, HSBC, lastminute.com, Morrisons and Honda Europe....
You can read the FCA’s announcement here.
We warn consumers of the risks of investments advertising high returns based on cryptoassets https://t.co/4Ve8knWgYY #cryptoassets pic.twitter.com/uCop8Ef77s
— Financial Conduct Authority (@TheFCA) January 11, 2021
AJ Bell: Beware 'get rich quick' crypto schemes
Bitcoin’s recent surge has been partly attributed to institutional investors buying into cryptocurrencies, with some judging that cryptocurrencies are a credible asset class offering protection against inflation.
But Laith Khalaf, financial analyst at AJ Bell, points out that this doesn’t make crypto a guaranteed goldmine.
Indeed, bitcoin’s rally - combined with aggressive marketing and record low interest rates -- have created a perfect storm, he warns.
The idea of getting rich quick is as dangerous as it is attractive and anyone who invests in crypto currencies should be prepared to lose their shirt, or a considerable portion of it.
“The regulator is clearly concerned that the high risks already inherent in cryptoassets are being compounded by scam activity, as well as unregulated firms targeting consumers with marketing material that highlights the rewards, but not the potential downside, of investing in cryptoassets. You can see how the rapid price appreciation of Bitcoin, combined with aggressive marketing and low interest rates on cash, creates a perfect storm for consumers looking to get a decent return on their money.
“Unfortunately Bitcoin and other cryptoassets are subject to dramatic price falls as well as rises. Consumers should be on high alert for unsolicited communications linked to Bitcoin or other crypto currencies and should consider any marketing material with an extremely critical eye. They should also make sure any firm they are dealing with is regulated, or at least has temporary permissions from the regulator.
“Irrespective of what you think the future for cryptocurrencies might be, there’s no denying that they are highly volatile and therefore sit at the precarious end of the risk spectrum. Products that are linked to cryptocurrencies might also be complex and hard to understand, further muddying the waters. Consumers probably can’t fall back on the Financial Services Compensation Scheme if things go wrong either.
“Much has been made of the fact that Ruffer, an investment company known for its conservative investment style, recently invested in Bitcoin for the first time. However, it’s important to note that the investment manager only invested around 2.5% of a portfolio that is otherwise invested in more traditional assets. Even if things go wrong in the cryptomarket, they have protection in their other investments.
“The fear is that consumers are leapfrogging stocks and bonds and going straight from cash to Bitcoin, in the mistaken belief it’s much the same. Buying Bitcoin and other cryptocurrencies should be something you do with money you are prepared to lose and after you have already built up a sizeable portfolio. If you haven’t got a stocks and shares ISA, then you should seriously stop and consider whether you should be investing in Bitcoin.”
FTSE 100 opens lower
In the City, the FTSE 100 share index has opened lower - down 25 points or 0.35% at 6848.
Travel and hospitality stocks are dropping, amid calls to tighten lockdown restrictions in England due to the surge in Covid-19 cases and deaths.
Airline group IAG (-2.1%), catering company Compass (-2.1%), drinks maker Diageo (-1.7%) and property developer British Land (-1.6%) are among the fallers, with the basic materials sector also dipping.
Holiday operator TUI (-6%) is the top faller on the smaller FTSE 250 index, followed by cinema chain Cineworld (-4.5%).
The Footsie had a very strong start to 2021, jumping over 6% last week amid optimism about the new year, but the pandemic may now be in focus again:
Connor Campbell of SpreadEx says:
Without the artificial buzz of the New Year, or a seismic event like a pair of Senate races, the markets were forced to contend with the day-to-day realities of trading in 2021.
For the FTSE, that means the prospect of even tighter restrictions in the UK, as experts believe the current level of lockdown isn’t having the desired effect. Practically, any further measures the government could implement should have minimal impact on the blue chip index’s individual components. Symbolically, however, the shift towards harsher constraints may undermine the FTSE’s recent growth.
At the moment the prospect of such changes is having a dampening effect on the UK index, rather than an actively negative one.
Despite its overnight dive, bitcoin has still more than quadrupled over the last year.
CNBC reports that there may be some profit taking:
The sell-off in cryptocurrencies comes after a huge rally and perhaps signals some profit-taking from investors. Bitcoin is still up over 340% in the last 12-months and last week hit an all-time high just below $42,000.
“The correction we saw was expected as we believe the BTC price surge recently from under $20,000 to $40,000 in the past four weeks will induce sell pressure,” Simons Chen, executive director of investment and trading at cryptocurrency financial services firm Babel Finance, told CNBC.
Scott Minerd of Guggenheim Partners also reckons prices reached unsustainable levels in recent days.
Bitcoin's parabolic rise is unsustainable in the near term. Vulnerable to a setback. The target technical upside of $35,000 has been exceeded. Time to take some money off the table.
— Scott Minerd (@ScottMinerd) January 11, 2021
Last month, Minerd suggested that bitcoin should be worth $400,000 on a ‘fundamental basis’, based on its finite supply and value compared with gold. Guggenheim outlined plans to invest in bitcoin last November, as a hedge against “rampant money printing” by central banks.
Bitcoin isn’t the only cryptocurrency falling this morning, as the sector drops back from its recent surge:
Crypto update:#Bitcoin 34160.54 -10.23%#Ether 1069.39 -15.86%#Ripple (XRP) 0.2809 -10.88%#BitcoinCash 486.71 -19.35%#EOS 2.7406 -11.18%#Stellar 0.2461 -14.55%#Litecoin 142.21 -16.01%#NEO 22.185 -10.01%#Crypto 10 Index 7684 -13.52%#BTC #ETH #XRP #BCH #XLM #LTC pic.twitter.com/XDPC7FEdlM
— IGSquawk (@IGSquawk) January 11, 2021
#Bitcoin crashes >10%: The worst Bitcoin plunge since March is reminiscent of the last halving cycle in 2016/2017. The rally was followed by a slump of more than 50% in 2017. pic.twitter.com/wDa3Q1mld0
— Holger Zschaepitz (@Schuldensuehner) January 11, 2021
The FCA also points out that all UK cryptoasset firms must be registered with the watchdog, under regulations to tackle money laundering.
Operating without a registration is a criminal offence. So if you’ve invested with a firm that isn’t on the Financial Services Register or the list of firms with Temporary Registration, you’re advised to withdraw your cryptoassets and or money.
FCA: Five reasons to be wary of cryptoassets
The FCA says it has five concerns about investments which are offering the prospect of high returns from investing in cryptoassets:
- Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements.
- Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
- Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market.
- Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.
- Marketing materials: Firms may overstate the returns of products or understate the risks involved.
Introduction: FCA warns of risky crypto investments
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Britain’s financial watchdog has just issued a warning to consumers tempted by the promise of high returns from investing in cryptocurrencies such as bitcoin - you might lose all your money.
The Financial Conduct Authority says it is aware that some firms are offering customers the promise of high returns through investing in cryptoassets, or lending or investments linked to cryptoassets.
Such offers, the FCA warns, are risky and speculative.
It also cautions that consumers who put funds into cryptoasset-related investments are unlikely to have access to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS) if something goes wrong.
The FCA says:
Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money. If consumers invest in these types of product, they should be prepared to lose all their money.
As with all high-risk, speculative investments, consumers should make sure they understand what they’re investing in, the risks associated with investing, and any regulatory protections that apply.
The FCA’s warning comes after cryptocurrency assets have shown huge gains in recent weeks. This morning, though, the market is sliding.
Bitcoin has tumbled back to around $34,000 -- or around 15% lower than its value over the weekend (at one stage it fell below $33k, before rebounding).
This comes after bitcoin surged through the $40,000 mark for the first time back on Thursday, doubling in price in just five weeks.
Bitcoin is down. Very down. pic.twitter.com/CJW4q0fhrk
— SCOFIELD!® (@Scofield_Fx) January 11, 2021
It had to happen at some point! #bitcoin down almost 20% after a historical rally. The more interesting question is perhaps what now? Buy/sell/HODL? pic.twitter.com/DjBeDrwzh6
— jeroen blokland (@jsblokland) January 11, 2021
Such volatility isn’t unusual for bitcoin, of course (which is why the FCA is concerned!).
Kyle Rodda, market analyst at IG, explains:
Perhaps betraying it wares as a risk-asset itself, Bitcoin and other cryptocurrencies are coming under selling pressure too today, as the upward momentum in prices begins to diminish, and even threaten to roll-over. Bitcoin is always a victim of thin liquidity, so much like last week, the dip so far seen in the cryptocurrency could be quickly bought come this evening when trading conditions become a little healthier.
Of course, after such an extraordinary rally in recent weeks, to historically overbought levels, Bitcoin is arguably another asset overdue for a pullback.
The agenda
- 2pm BST: Bank of England policymaker Silvana Tenreyro speech: Let’s talk about negative interest rates
Updated
