Is Crypto Legal In The UK?

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It’s completely legal for you to buy, sell and trade Bitcoin and other cryptocurrencies in the UK using the many different exchanges that operate in the country.

All crypto exchanges – often referred to as a Virtual Asset Service Provider (VASP) – that operate in the UK must register with the Financial Conduct Authority (FCA) and apply for a licence.

As a result, they must comply with Anti-Money Laundering (AML) regulations and Know Your Customer (KYC) rules.

So far so good. All UK citizens are free to use licenced VASP services to buy, sell, exchange and trade any number of cryptoassets. This includes mainstream coins such as Bitcoin, Ethereum, Litecoin and Bitcoin Cash, stablecoins like Tether, and meme coins, such as Doge and Shiba Inu.

It’s worth noting that while legal, Bitcoins and other cryptoassets are not considered to be money – or fiat currency – in the UK. That is, they’re not backed by the Government.

Also, cryptocurrencies and related products, such as interest paying saving accounts and lending platforms, are not covered by the Financial Services Compensation Scheme

Cryptoassets are classed as property

The legal classification of cryptoassets is property, although there are no specific laws governing their use. They are not, however, considered legal tender.

A Cryptoassets Taskforce has been set up by the FCA, the Bank of England and Her Majesty’s Treasury to assess the impact of crypto and develop policy surrounding its use.

As part of its work, the taskforce has identified 8 ‘market actors’ that can legally operate in the crypto space.

They are:

• Market investors (both retail and institutional)
• Payment providers (to enable people to buy crypto)
• Trading exchanges
• Miners
• Crypto developers
• Financial intermediaries (such as brokers or those who provide advice to others about purchasing crypto
• Liquidity providers (those who ensure that the markets can function)
• Wallet and secure storage providers

Bitcoin ATMs are also allowed, and at the time of writing there are more than 300 BATMs, as they are known, installed around the UK.

Derivatives that allow ‘betting’ on crypto are banned

However, the FCA has banned cryptocurrency derivatives from being offered to retail clients in the UK.

A crypto derivative is a product based on the price of Bitcoin or any other cryptocurrency. Exchange Traded Notes (ETNs) which relate to cryptoassets are also banned.

Financial vehicles that fall under the ban also include options, futures or Contract for Difference (CFDs). Effectively any product that facilitates what are considered risky bets are outlawed.

With many of these products, retail clients are paying a fee to make a high stakes bet. Profits can be high, but there’s the potential to lose far more than your original bet.

The FCA has cited five reasons for its decision:

• No reliable basis for calculating the value of crypto
• Widespread criminal activity and theft in the secondary (derivatives) market
• The extreme price volatility of cryptoassets
• Lack of understanding among retail investors about cryptocurrencies and the markets
• A lack of legitimate reason for retail clients in invest in derivatives

The vast majority of retail consumers have lost money using derivatives before they were banned, either through using the products or being scammed.

In 2021, the US Securities and Exchange Commission gave the green light to a futures Bitcoin Exchange-Traded Fund, but ruled against a ‘pure’ Bitcoin ETF, ie one directly related to the spot price of the cryptocurrency.

Beware of scam derivatives firms

Despite the ban, derivatives are still widely advertised across the internet and these ads can be seen in the UK.

However, it’s highly likely that these will be scams as no legitimate company can offer these products to UK residents.

The FCA has stated that the rules are part of an effort to stop retail investors being taken advantage of by unscrupulous actors in the crypto space.

Legality of Bitcoin varies around the world

The rules surrounding the legality of cryptocurrency vary greatly around the world.

In some countries there are virtually no restrictions on their use, while in others there is a total ban.

Read our feature on whether Bitcoin can be banned or further regulated to find out more.