Meanwhile, the UK is preparing to open the floodgates for retail investors to put their money into crypto ETPs. Whitehall can hardly hide its glee at the opportunity to improve the UK’s global cryptocurrency competitiveness. Before you get too excited, here’s where we need to add a little cold water. Think of it like this: just because you can drive a Formula 1 car doesn't mean you should – especially on the M25 during rush hour.

The FCA’s current proposal to remove the prohibition on crypto ETPs appears to be motivated by a need to maintain competitiveness. They’re obviously watching closely what the Americans and Europeans are doing. Are we truly ready? Are you truly ready? Okay, magic internet money aside—well, not totally aside—let’s get into the unsexy, but absolutely crucial, things.

Volatility: Buckle Up Buttercup

Crypto has a well-earned reputation for extreme price volatility. Bitcoin at times can be like an over-caffeinated toddler who just got onto a sugar binge. We're not talking about your average market fluctuations; we're talking rollercoaster-level volatility that can make even seasoned investors queasy.

  • Consider this: If you're the kind of person who gets stressed checking your portfolio daily, crypto ETPs are probably not for you. Remember, Morningstar suggests keeping crypto exposure to a maximum of 5% of your portfolio, and even then, with a long-term (think decade) horizon. Why? Because trying to time the market with crypto is like trying to predict the weather with a rusty barometer. Good luck.

This isn’t about some imaginary balance sheet — it’s people’s lives and livelihoods at stake. It's about your emotional well-being. Are you willing to risk waking up one day and finding a large percentage of your hard-earned capital erased? Be honest with yourself.

"Regulatory Wild West" Still Exists

ETPs offer investors a greater sense of regulatory protection than purchasing crypto directly on an exchange. At the same time, let’s be real about the limitations. Much of the crypto space—even with ETPs—still seems like the Wild West.

Think of it like this: slapping a sheriff's badge on a gunslinger doesn't suddenly make him a saint. Initial assets are still crypto, and the regulatory environment is still changing quickly. What’s legal today could be a new grey area tomorrow.

  • Consider this: The FCA itself has been historically skeptical of crypto, warning about scams and potential capital loss. This proposed shift isn't necessarily a sign that crypto is suddenly safe; it's a sign that political winds are changing. Don't confuse the two.

Note that these ETPs are usually designed as ETNs (exchangetraded notes). That essentially means you are holding debt, not the actual underlying crypto asset. If the person or corporation that issued that bond goes belly up, you might find yourself holding the bag. Is that a risk you want to accept?

The "Get Rich Quick" Mirage

The biggest danger of all? The allure of quick riches. Crypto’s volatility is what attracts the speculators and the FOMO crowd. While chasing short-term accomplishments in crypto is usually a fool’s errand, as a gambler might say, in the long run, the house always wins.

According to WisdomTree’s recent research, a substantial majority of UK retail investors believe a 10% (or more!) allocation to crypto is suitable. That’s about as smart as betting your whole paycheck on one horse in a horse race. Play the ‘free market’ casino economy one time. Sure, you can hit it big, but you’re much more likely to go bust.

  • Consider this: The US saw massive inflows into Bitcoin ETFs after their approval. But the UK isn't the US. Our investor base is smaller, our liquidity pool is different, and our regulatory guardrails are (hopefully) more stringent. Don't expect a repeat performance.

The FCA's move is driven by a desire to boost competitiveness, but let's be honest: it could be a boon for firms promoting crypto ETPs. Are they really doing what is best for you or are they just looking to profit from all of the buzz?

So, should you invest in crypto ETPs? That's a question only you can answer. Just play smart, know what you’re getting into, don’t overreach, and don’t let greed be your compass. Think of it like this: crypto ETPs might be a step forward, but they're not a magic carpet ride to financial freedom. Pic of balance issue They look a lot like a high wire act. You should invoke them with trepidation and have a safety net provided.