UK Regulators Attempting to Ban Crypto Derivatives, CoinShares Fights Back

CoinShares is responding to UK regulators over a potential ban of various crypto products.

The London-based digital asset management firm, which provides financial products and services for professional investors, says that UK regulator are “cherry picking” information about cryptocurrencies to cobble together enough ammunition to stop the sale of certain investment products that reference crypto assets.

According to CoinShares,

“The FCA claims investing in crypto-assets is too dangerous, but they don’t even understand how the sector works!”

In March 2018, the UK government launched the Cryptoassets Taskforce (‘the Taskforce’), consisting of HM Treasury, the Financial Conduct Authority (FCA) and the Bank of England. The Taskforce issued a report in October 2018 that led to further investigation and consideration of banning the sale of crypto products to retail consumers to prevent “harm from potentially sudden and unexpected losses”.

The proposed ban would include the sale, marketing and distribution of derivatives (i.e. contracts for difference, options and futures) and exchange traded notes (ETNs) that reference certain types of crypto assets to all retail consumers by firms in, or from, the UK.

According to the report,

“As the CATF Report found, we consider that retail consumers cannot reliably assess the value and risks of derivatives and exchange traded products that reference certain cryptoassets. This is due to the:• nature of the underlying assets, which have no inherent value and so differ from other assets that have physical uses, promise future cash flows or are legally accepted as money• presence of market abuse and financial crime (including cyberthefts from cryptoasset platforms) in the secondary market for cryptoassets• extreme volatility in cryptoasset prices• inadequate understanding by retail consumers of cryptoassets and the lack of a clear investment need for investment products referencing them.”

The consultation closes on Thursday, October 3. In light of the deadline and the looming threat to its business, CoinShares, which sells crypto ETNs, has responded to regulators in an open letter.

In addition to a lack of knowledge about the sector, the company says regulators have insufficient evidence and a lack of proof to bolster their claims against crypto-based products.

“We believe that the FCA has not provided sufficient evidence to justify the proposed ban. Through its consultation, the regulator makes little attempt to genuinely evidence its claims and instead ‘cherry picks’ datasets in order to illustrate its perception of cryptoassets, ETNs and the perceived harm the FCA believes these products cause. More broadly, the FCA’s analysis on cryptoassets and these associated instruments demonstrates a lack of understanding of their functionality, value and the motivations for why an investor might seek out such products.”

CoinShares has provided a template for supporters who want to help fight the proposals by sending the Taskforce a written response.

The response contains language to support the argument that the FCA has cherry-picked statistics to skew the facts.

According to the response letter,

“The value of any investments can fall or rise over any arbitrary time period and it appears that the time period chosen in the Consultation – June 2017 to December 2018 – was ‘cherry-picked’ to show the lowest possible benefit to investors, given the starting date.

A positive return to investors is the most powerful benefit that an investment can offer. Over the FCA’s chosen period, COINXBE* returned 50%, and if the FCA had chosen the range June 2017 through June 2018, a period which ended before the consultation was published, it would have found returns of 401%. For that matter, on a monthly basis, COINXBE has returned 8.2% compound average since inception; four of the past five years, including 2019 YTD, returns have been positive.”

You can check out the full letter here.

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