British financial watchdogs want to draw up guidelines for consumers and traders dealing with cryptoassets in the UK.
The Financial Conduct Authority (FCA) has issued a consultancy paper outlining the proposals.
The starting point for the FCA is that cryptoassets are means of exchange but not currency or money.
“They are too volatile to be a good store of value, they are not widely accepted as a means of exchange, and they are not used as a unit of account,” says the paper in explaining the decision.
In a bid to separate cryptoassets from currency, the FCA plans to call them ‘tokens’ rather than currencies.
The UK cryptoasset market
The types of tokens are split into three categories:
- Exchange tokens – tokens for buying and selling goods and services
- Security tokens – tokens that behave like stocks and shares
- Utility tokens – tokens that come with a discount, reward or other benefit, but do not entitle holders to participate in a business like security tokens
The paper also highlights the extent of the cryptoasset trade in the UK.
The FCA says the market appears to have 15 exchanges out of 231 worldwide, with a $200 million daily trading volume, which is around 1% of the global market.
Four exchanges regularly post daily trades of more than $30 million, which is below average for the rest of the world.
Risks for consumers
The main FCA worry is consumers do not understand the risks that come with cryptoasset investment.
“Cryptoassets pose a range of substantial risks to consumers, which stem from consumers purchasing unsuitable products without having access to adequate information,” says the FCA.
“This can include fraudulent activity, as well as the immaturity or failings of the market infrastructure and services. Consumers may experience unexpected or large losses. While this is true of many types of investments, cryptoasset investors should be particularly aware of the volatility that many tokens experience, and the limited information available on how these tokens work.
“Preliminary findings from our consumer research suggest that consumers can overestimate their knowledge of cryptoassets and the underlying technology, with some respondents believing that, due to language such as ‘mining’ and ‘coins’, they were investing in tangible assets.”