UK FCA Moves to Ban Crypto Purchases with Borrowed Funds, Proposes Stricter Rules for Retail Investors
The UK Financial Conduct Authority (FCA) is set to implement major regulatory changes in the cryptocurrency market, proposing a ban on the use of borrowed funds—including credit cards, loans, and credit lines—for purchasing digital assets such as bitcoin. This initiative comes in response to a sharp increase in UK retail crypto investors using credit to purchase cryptocurrencies, rising from 6% in 2022 to 14% in 2024, according to FCA data. The move aims to improve consumer protection by reducing speculative, high-risk behaviour reminiscent of gambling. The proposed ban would extend beyond traditional credit sources to include fintech and digital-asset-specific lenders. There may be exceptions for stablecoins issued by FCA-regulated entities. The FCA is also considering stricter measures for crypto lending, borrowing, and staking, potentially restricting these high-risk activities to institutional investors. These proposals are part of a broader governmental effort to enhance transparency, investor education, and overall regulation within the UK’s digital asset sector, which now includes around 7 million adult holders (about 12% of the population). Public consultation on the proposals will remain open until June 13, 2025. This evolving regulatory stance may significantly impact retail access to crypto, overall market participation, and could alter the trading landscape, particularly in regards to leveraged trading and high-risk products.
Bearish
The FCA’s proposed ban on the use of borrowed funds for retail crypto purchases significantly limits leveraged trading and reduces easy retail access to digital assets like bitcoin. Historically, limiting leverage and retail participation, especially during periods of regulatory tightening, has resulted in decreased buy-side pressure and reduced overall trading volume. By targeting both credit-based purchases and high-risk products such as crypto lending and staking, the new regulations aim to dampen speculative activity and mitigate risks of market instability. While these measures may encourage more sustainable market development in the long term, the immediate and short-term impact on the market is expected to be negative, as restricted access could lead to a decrease in demand and trading activity among retail investors—a major driving force in recent crypto rallies. Although institutional investors are largely exempt, the loss of retail momentum may weigh on price action, particularly for bitcoin and related products.