Cryptocurrencies are legal in the UK. The popularity of these digital assets has witnessed a meteoric rise in recent times across the world. In the UK alone, about 9.8 million people were involved in cryptocurrency trading in 2021.
Regulations around cryptocurrency are not as old as those of other investment classes like stocks. We have explored the subject of cryptocurrency's legitimacy in the UK and have covered the relevant regulations around cryptocurrencies in this blog.
UK Regulations Around Cryptocurrencies
Cryptocurrencies like Bitcoin, Ethereum, and Litecoin are designed as a form of payment. The UK regulates all forms of payment to avoid cases of money laundering and terrorism financing.
The Financial Conduct Authority (FCA) regulates cryptocurrency exchanges and Bitcoin ATMs and use these digital platforms to strictly collect the traders’ data in line with anti-money laundering (AML) and Counter-terrorism financing (CTF) laws and also to do customer due diligence (CDD).
The FCA, however, prohibited the sale of crypto derivatives to retail consumers in early 2021. Exchanges were unable to market or distribute options, futures, and contracts for differences (CFDs).
The government considered these instruments harmful to retail instruments. In a bid to clarify the government’s crypto sector policy, relevant stakeholders continued to enforce the current frameworks to avert risks while promoting crypto benefits.
The authority banned exchange-traded notes (ETNs) and derivatives that use digital assets as underlying assets because of the inherent nature of the underlying assets, which do not have a basis for evaluation. However, this ban does not affect professional or institutional traders.
The FCA does not have regulatory supervision over direct instruments on crypto assets by consumers. Those buying cryptocurrencies should understand that there is no consumer protection, even by the Financial Services Compensation Scheme (FSCS). The authority warns cryptocurrencies are volatile and buyers should be prepared to lose all their investments.
Tax Laws Around Cryptocurrency
Although no specific taxation law on cryptocurrencies exists, the HMRC expects investors to pay either income tax or capital gains tax. The amount of the income tax or capital gains tax paid will depend on your profits.
The most important thing to understand is that long-term realized capital gains tax are subject to a substantially lower tax rate than ordinary income tax.
Possible Cryptocurrency Regulations in the Future
Unlike China, which has prohibited crypto activities, the UK government is enthusiastic to make the UK a crypto hub. Parliamentarians proposed cryptocurrencies in the planned Financial Services and Markets Bill.
In some industry-shaking proposals, the UK government seeks to make stablecoins as a form of payment in the UK. Additionally, a task force was instituted to look at how the government could innovate a special Central Bank Digital Currency (CBDC).
This CBDC is intended to make payments faster, more efficient, and more reliable. Industry experts expect more regulations around the CBDC which could potentially shape cryptocurrency trading in the country.
Where Can I Buy Cryptocurrencies Legally in the UK
Licenced exchanges are the best way to buy and sell cryptocurrencies in the UK. Popular crypto assets like Bitcoin, Ethereum, and Dogecoin are readily available on all custodial exchanges and these platforms can be accessed online through the web or mobile apps.
Bitcoin ATMs also offer UK residents a way to buy cryptocurrencies. However, these ATMs are limited because they need to be installed in physical locations and have a limited number of crypto assets for purchase.
Exchanges provide a simple way to deposit and acquire these virtual assets. Bank deposits and credit/debit cards are popular ways for beginners to purchase these assets. Some of the popular exchanges in the UK that the FCA regulates include Coinbase, Kraken, and eToro.
Why Do People Trade Cryptocurrencies in the UK
The UK population continues to buy and sell cryptocurrencies. However, buyers acquire various crypto assets for different reasons. For example, Bitcoin is meant to be a form of payment, while MANA gives you access to a metaverse.
Social media channels like Twitter also play a crucial role in influencing buyers to buy crypto assets through the news cycle and advertisements.
Some of the other reasons people buy cryptocurrencies in the country include the following:
A way to make money through speculation
Diversifying the investment portfolio
As a long-term saving plan
The fear of missing out (FOMO)
