The United Kingdom’s financial watchdog, the Financial Conduct Authority (FCA), is taking a strong stance on crypto promotion. They recently proposed new rules that have garnered the support of many within the UK’s digital asset space. One such rule targets claims made by companies promoting cryptocurrencies as an inflation hedge.
Cryptocurrencies like bitcoin are often compared to gold, with proponents arguing that their limited supply can act as a store of value amidst rising inflation. However, the FCA has urged firms to be cautious when making such claims, as they can potentially mislead investors. This is especially true considering the limited data available on cryptocurrencies’ performance during periods of high inflation, as well as their inherent volatility.
While some industry experts agree with the FCA’s position, others argue that the concern may be overblown. For instance, Ryan Shea, an economist at UK-based crypto index trading Trakx, acknowledges that cryptocurrencies are not inflation-protected assets like index-linked Gilts or Treasury bonds. However, he also points out that there is a strong similarity between the supply metrics of cryptocurrencies like bitcoin and gold.
Amidst the ongoing debate, it is crucial to remember that bitcoin is still a relatively new asset. James Butterfill, head of research at CoinShares, states that due to its limited data, decisions regarding bitcoin as an inflation hedge must rely on fundamental concepts. Theoretically, its limited supply should provide a hedge against inflation, but the market’s historical data is insufficient to support this claim.
This sentiment is echoed by a statement from S&P Global, which recognizes that although cryptocurrencies could theoretically serve as a hedge against inflation, the lack of supporting data weakens this argument. Diego Ballon Ossio, a partner at Clifford Chance law firm, emphasizes that the use of cryptocurrencies as a hedge against inflation often stems from imprecise marketing slogans, rather than accurate investment advice.
Given these concerns, it is not surprising that the FCA plans to ban such promotions. Ossio suggests that the ban will prompt firms to think more carefully about their marketing statements and ensure they do not mislead potential investors.
It remains to be seen how these developments will impact the future of cryptocurrencies in the UK, but what is clear is that the FCA’s new rules on crypto marketing are set to come into effect on October 8. This will undoubtedly usher in a new era of more cautious and responsible promotion within the industry, as companies learn to adapt to the regulatory environment and the expectations of the FCA.
Source: Coindesk
