Is Crypto Trading Legal in the UK?

From its humble beginnings in 2009, Bitcoin and, subsequently, many other cryptocurrency programs appeared on the global investment scene. Digital currencies were nothing new. Work on the concept goes back 40 years or more. However, the introduction of blockchain technology caused a sea change in how payment systems might operate in the future and how investors might cash in on the phenomenon that was happening rapidly across the globe.

Despite resistance from regulators, government officials, and the entrenched brokerage community, crypto programs have thrived. Values rose enormously but also plummeted during what became known as Crypto Winter. Cryptos, however, did not die, as many predicted. According to Coinmarketcap, there are presently nearly 22,000 distinct crypto programs, and another 524 exchanges spread out across the planet to support trading and investing where it is legal. Cryptocurrencies now have a total market capitalisation of just under a trillion USD.

Not all programs are traded on exchanges, far from it, but the sheer size of the market suggests that the concept has been accepted in most quarters, perhaps, with some trepidation. The largest concern is the level of scandals in the industry and the fact that the criminal element in our society has flocked to this medium since capital flows can be anonymous. Cryptos have also been dubbed the most volatile asset class in history, which should be a warning for traders.

In this article, you will learn more about this exciting way of trading, how cryptos can be traded and their legality, if an authority regulates the activity in the UK, and how to choose a safe broker for this trading. Lastly, to assist with this last effort, we have provided a table of the safest brokers in the UK for trading cryptos. From time to time, we update our broker reviews and refresh this table to include only the best-of-the-best for your consideration.

What is Crypto Trading?

As the acceptance and popularity of cryptocurrencies grew, brokers began to accept the reality of the marketplace grudgingly. Bitcoin (BTC), the King of Cryptos, had always dominated the market with an early market share of 90%+, which fell precipitously when Ethereum (ETC) and a host of contenders entered the picture in 2017. As of November 2022, BTC commands a 38% share, ETC 18%, and the remaining eight programs in the Top Ten account for 26% of the total market cap.

The value of one Bitcoin has fluctuated dramatically since its inception. The same is true for other programs, but the investment ride has been nothing short of a rollercoaster, complete with rising and falling periods that can only be described as thrilling. BTC was initially equivalent to one USD. In nine years, it hit a peak of over $19,000 but crashed after that.

In late 2020, it began another assault, rising to $67,550 in November of 2021, only to fall to its current value of $16,800. For 2022, Bitcoin is down roughly 65% and is nearly 75% below its all-time high. Losses on other crypto programs have exceeded these amounts, leaving many casualties in their wake. This track record, however, is intriguing for traders, who thrive on volatility and its accompanying opportunities.

Is Crypto Trading Legal in the UK?

Traders in the UK have searched for ways to trade cryptos effectively for years. With large declines in value occurring in a predictable fashion, shorting BTC and other token programs would seem to be a profitable enterprise. The problem has been that the entire crypto industry is relatively unregulated. Yes, there is compliance with payment protocols in some places, but the rules are constantly in flux.

Today, it is legal to trade cryptos in the UK, but unfortunately, several regulatory restrictions apply. Regulators have several concerns. According to CNBC, consumers have lost more than $1 billion due to crypto scams since 2021. Avoiding fraud is one thing, but trader casualty rates when trading cryptos approach 90% and higher, according to recent studies, perhaps, because the mindset of most newcomers is attuned to gambling or trading “in the zone”. Neither approach works. A trader must be disciplined and have a practised plan of attack.

High casualty rates, high volatility, and under-regulated brokers on and offshore have forced regulators to step in and limit how cryptos can be traded. Various government task forces have opined on industry issues and revised local rules, but, unfortunately, on an inconsistent basis. In the UK, leverage for trading cryptos has nearly been eliminated for retail traders, and retail traders may not trade CFDs, spread bet, or deal in other crypto-related derivatives. Professionals and institutions are exempt, but regulatory definitions rule out retail consumers in most cases.

Unfortunately, using CFDs is a convenient way to go long and short with cryptos. Shorting Bitcoin, for example, can be very difficult unless you use options or CFDs. What are traders to do? There are ways to buy and sell cryptos via direct ownership through a local exchange in the UK or from a broker that has a relationship with a crypto exchange. Dealing in options with an offshore exchange is also possible but is not recommended due to the risks involved.

Trading cryptos is a hazardous proposition, regardless of the chosen method. Daily swings in value of 5%, 10%, and more are not uncommon, which can wreak havoc on any leveraged positions you might have in the market at a given moment. Buying and selling cryptos in the UK is legal, but you will run into a brick wall if you wish to use derivatives like options or CFDs.

Demand to trade cryptos, however, is so great, the UK included, that the market will provide solutions. Some reputable online brokers can help you with this activity, whether buying and selling directly or through commingled funds that hold a basket of cryptos. Finding a safe and secure broker is a top priority.

Who Regulates Crypto Trading in the UK?

One reason cryptocurrencies are at the centre of controversy is the decentralised nature of blockchain-based assets. Government officials and regulators cannot easily fit cryptos within the current legal framework for investment instruments. The new digital world of currencies defies existing securities’ law, creating confusion and inconsistent rulings. For example, the Financial Control Authority (FCA) does not regulate crypto assets; however, it can regulate brokers and firms in the crypto business to ensure Anti-Money Laundering (AML) laws are complied with.

The FCA, however, recently moved to protect the public interest from what it described as hazardous crypto CFD trading. In January 2021, it banned selling crypto CFDs, derivatives, and exchange-traded notes to retail consumers. Remember that current laws can change and that the Financial Services Compensation Scheme protecting UK investors for up to £85,000 of loss if a broker goes bankrupt, does not cover cryptocurrency assets.

How to Choose a Safe Crypto Broker in the UK

Trading cryptos has come a long way since 2009, and brokers have had plenty of time to adapt and arrange to provide their clients with a high level of service. Choosing a safe crypto broker in the UK follows the same decision-making path as for any online broker, but exchanges also offer a viable option in the case of cryptos.

As long as the ban from the FCA on CFD trading of cryptos applies to retail traders in the UK, the first temptation might be to look offshore for your broker of choice. Dealing with an offshore broker can often be an exercise in futility. Yes, there are legitimate foreign-based brokers, but pressing your legal rights in a foreign jurisdiction is daunting. You will be better served to review your local options. The best offshore brokers will have a physical presence in the UK and will also comply with local rules.

Exchanges are under-regulated, but the best ones go out of their way to establish good working relationships with the FCA. Regulation is a primary concern for a local broker. You will want fees to be low, execution speeds high, customer support at the ready, and a product portfolio and trading platform that meets your needs. To guide you in your search, we have prepared a list of the safest crypto brokers in the UK for your review.

The Safest Crypto Brokers in the UK

Finding a safe crypto broker in the UK need not be an impossible task. Our table below presents the best-of-the-best, based on our continuing reviews of the UK brokerage industry.

Concluding Remarks

Buying, selling, and trading cryptos in the UK is legal. However, the FCA has instituted a ban on retail consumers’ use of crypto derivatives, i.e., CFDs and exchange-traded notes. Your first task will be to find a safe broker or exchange in the UK that will give you access to this exciting market. Cryptos, however, are high-risk! Proceed with caution! The recent demise of the unregulated FTX cryptocurrency exchange should act as a warning.