FCA Just Banned Bitcoin in the UK
There are a number of options available to you, today and for the time being, to buy and hold your Bitcoin, as an emerging asset class.
Update: Bitcoin reached the previous All-Time-High on 30th Nov 2020. Analysis and Price Predictions
Related: Why I eagerly spent my pension on Bitcoin last year before Institutions now follow suit
Following the latest decision from the UK’s Financial Conduct Authority (FCA) — you as a retail (uneducated baboon) investor will no longer be able to leverage the tax-efficiencies (within the ISA and SIPP accounts) for your crypto asset (BTC, ETH, XRP and the like) purchases within your retail investment portfolios, along with the traditional market offerings (Stocks, ETFs)
How, Why? Let’s dive through with a quick recap, my position, the news, and your options on the table. In short, The Nanny State strikes again, and the retail investor crowd is likely to be worse off in the long run. My humble opinion. Read on.
Crypto Asset Ownership Options
The Independent Route — You can buy it on the crypto exchange and store with their very own online wallet service. Or, you can hold it offline, using the likes of Nano Ledger S.
The Tax Efficient Route — You could buy bitcoin (BTC) and ethereum (ETH) using the XBT ticket — Bitcoin Tracker fund — on platforms like Hargreaves Lansdown. This provided a very effective tax-saver wrapper as well. You could make use of the personal investment allowances with ISA or, like me, opt for the pension tax-wrapper which carries the usual PAYE tax deductibles-features and even employer-contribution for the UK employees.
“Huh?” I hear you think out loud? Let’s detail it down.
All in all, you can use your private pension pot of, say £10,000 to buy Bitcoin. But not from 2021.
This is not quite common knowledge, because the masses are keen to buy and hold bitcoin outright, with no “management fees”. And rightfully so.
But the catch is that investment (dis)balance. The £10,000 pension pot you built up (with your gross salary) and employer’s contribution, versus the net investment saving pot you would have had to make on your own — which, like-for-like could be as much as £5000 difference.
The wrapper for your pension investments, the one you make by yourself is called SIPP — Self Investment Pension Plan. This is where you, as an educated investor are willing to take risks and put your money as you decide fit. It is not intended for the unwary and unprepared. It says so on the tin, and when you open up such SIPP account in fact. The great account caveat versus the average pension fund account is that you can decide to buy (mostly) whatever you like with your SIPP funds. Again, mostly.
My Position
You may have done your own calculation and reached the same conclusion that Bitcoin, while an emerging asset class is quite volatile. Furthermore, you may not wish to hold the crypto keys/wallet and storage for years and decades to come that it may be.
Finally, it is the significantly larger investment pot with tax-efficient breaks.
This is exactly what I have done — I have used some of my private pension funds to transfer into my SIPP account with Hargreaves Lansdowne and I purchased some ETH (XBT Tracker) and some BTC (XBT tracker)
The screenshot of the Tracker Fund at the time of writing this.
The News — Bitcoin (ETN) Banned in 2021
With all the context I offered above you can now appreciate how the following news announcement I received from this very same broker, that UK Financial Conduct Authority (FCA) has decided to ban access to this product from purchasing starting January 6th, 2021.
I find this quite odd and ironic for a number of reasons.
First, the ETN (Electronically Traded Notes) tracker funds were available for quite some time in the UK, during the most volatility in what was known as the Crypto Winter — after the crypto market cap popped in winter of 2017/18.
That's when the most losses have taken place, reducing some valuations to 90% from their bubble valuations. Bitcoin lost nearly 85% valuation from the All-Time High (ATH).
FCA was ok with ETN availability in this period and immediately afterward — I purchased my ETN (XBT BTC tracker in 2019).
Let's compare the ETN volatility with the general markets, the FTSE, the DAX, and the likes of S&P 500.
Unless FCA is looking at different charts on this one, the volatility alone, in my opinion, does not kill the asset class to force such a draconian ban on ALL purchases of ETN. I would think a long-term performance should be assessed for any valid argument to ban a retail investor from such a specific asset class.
Let's remind ourselves, this blockchain crypto asset — as an asset class is nascent. Crypto assets are the first such new asset class since the emergence of bonds in 1693 — created by the Bank of England. And in my opinion, the poor understanding of such asset class will create these I.M.O twisted “protection” policies, which often arrive too late to be of use and quick enough to prevent the savvy retail investor from partaking in the great life-changing event. It’s not another business, another bond, another idea. It's a whole asset class. It’s not going away.
While the retail investor is “protected”, also-known-as-prevented-access, the commercial investor will be making great strides of on-boarding maturing the commercialisation of such asset class, before offering it back to the same retail investor at x10 or x20 the price. Convenient. Thank you the Nanny State.
Your Options
Now that you know, you still have options. You still have time. Until January 6th, 2021 in fact. You can still Buy ETN (Electronically Traded Notes) like XBT Bitcoin Tracker Fund and similar tracker funds for Ethereum and XRP.
You can still own — and sell your holding at any time, after January 6th 2021. But not buy it again.
If you never invested in ETN with your SIPP — no worries. If you were thinking of doing so or planning to transfer some of the private pension into a SIPP account, you need to act swiftly. It takes around two months to transfer amounts into your SIPP account, particularly with a different provider.
Private token ownership is not affected. It is also highly impractical to ban any private bitcoin wallets and offline storage. That is the whole premise of Bitcoin: Anyone can buy it, anyone can receive it — and nobody can tell anyone what they can or cannot do with it, thanks to the decentralised governance and control. No single country or entity controls it. It’s a protocol, an idea, that is nearly impossible to hinder and confiscate. (But you knew all that if you’re here — kudos)
You can still choose to own your Bitcoin outright and hold it with an online exchange and offline.
The Response
It’s not all doom and gloom. Coinshares, which operates this XBT Provider BTC/XRP/ETH Tracker ETN fund has issued its own response to this FCA ruling.
As far as they are concerned, UK will miss out but its business as usual for them going forward and services will continue operating as before without any service impact. They offer these tracker funds to other European countries and the US.
There. Hope you found this insightful and informative
While it’s a given — none of this is investment advice. I am not your professional advisor. This is my personal opinion piece.
