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Retail investors could soon have bitcoin ISA access after regulator ruling
Retail investors in the UK could soon have bitcoin ISA and pension access after the FCA announced it was easing its rules.
Mainstream bitcoin investment products in the UK have been banned since 2021 thanks to a past crackdown by the financial watchdog the Financial Conduct Authority.
But it has now announced it plans to allow bitcoin ETN investing by retail (private) investors. Institutional (i.e. professional) investors already have access to such instruments.
The ruling is potentially groundbreaking as it could lead to the inclusion of bitcoin products inside tax-efficient wrappers such as pensions and ISAs.
David Geale, executive director of payments and digital finance at the FCA, said: “Since we restricted retail access to cETNs, the market has evolved, and products have become more mainstream and better understood.
“In light of this, we’re providing consumers with more choice, while ensuring there are protections in place. This should mean people get the information they need to assess whether the level of risk is right for them.”
This is important for retail investors because assets such as bitcoin are otherwise subject to capital gains tax (CGT) on the sale of the asset – assuming it has increased in value since the investor purchased it. This is regardless of where the asset is held (if outside a tax wrapper) – assuming the person is a UK resident.
CGT rates are currently 24% for assets such as bitcoin. The current tax-free allowance is £3,000 on overall gains each year.
Bitcoin ISA access
Bitcoin ETFs have been one of the most high-profile crypto products to take the leap into mainstream finance in recent years. But for now investors will only have bitcoin ISA access by using lesser-know ETNs.
Since bitcoin ETFs were made legal in the US they have exploded in popularity as an easy way for people to gain investment exposure to the asset, without the need to hold it independently. In exchange, financial institutions that offer the ETFs charge annual fees to the investor.
ETFs differ from ETNs in a key way. ETF stands for ‘exchange traded fund’ while ETN is ‘exchange traded note’. Both are functionally similar in terms of tracking the price of the underlying asset. But whereas the ETF will own the underlying asset, an ETN is an investment in debt which is priced against the asset in question.
The risk with this is that if the issuer of the ETN goes bust, then the investor won’t have access to the underlying asset and their investment will be worthless. There is also no protection under schemes such as the Financial Services Compensation Scheme (FSCS).
So while this means investors in the UK can now potentially hold bitcoin inside their ISAs and pensions – depending on the providers which choose to offer them – the risk is higher than with a typical ETF-based asset.
Where now for bitcoin?
Bitcoin as an asset has come on leaps and bounds in recent years, but there is a lot to consider when it comes to the cryptoasset.
Mouthy Money recently spoke to Daniel Parkinson, the Bitcoin IFA, to get the low down on everything you might need to know, from its history, to what could happen next and how to hold it safely.
