Bitcoin continued its recent slump on Tuesday, down more than 2% on the day to $41,912 (£30,786) as the UK government looks to toughen up rules on misleading cryptocurrency adverts.
The Treasury department, following in the footsteps of Spain and Singapore, said ads will be brought into line with other financial advertising to ensure they are both fair and clear.
This means the promotion of qualifying cryptoassets will be subject to Financial Conduct Authority (FCA) rules, in line with the same standards that other financial promotions such as stocks, shares, and insurance products are held to.
Under the Financial Services and Markets Act 2000, a business cannot promote a financial product unless they are authorised by the FCA or the Prudential Regulation Authority (PRA), or the content of the promotion is approved by a firm which is.
Firms that wish to promote such investments and activities must comply with binding rules that financial promotions must be fair, clear, and not misleading.
The new rules aim to increase consumer protection while encouraging innovation.
It comes as around 2.3 million people in the UK are believed to own a cryptoasset as their popularity continues to rise.
However, research suggests there is still a lack of understanding of what crypto actually is, suggesting that some users may not fully understand what they are buying.
“This poses a risk that these products could be mis-sold,” HM Treasury said.
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Chancellor Rishi Sunak said: “Cryptoassets can provide exciting new opportunities, offering people new ways to transact and invest – but it’s important that consumers are not being sold products with misleading claims.
“We are ensuring consumers are protected, while also supporting innovation of the cryptoasset market.”
It comes after the government launched its Cryptoasset Taskforce in 2018, which continues to steer the UK’s regulatory response to the market. Meanwhile, the Advertising Standards Agency has already been banning individual crypto adverts that it deems misleading or understating the risk involved in the market.
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“This new move by the government will lead to a wholesale tightening of the rules governing adverts,” Laura Suter, head of personal finance at AJ Bell, said. “However, the FCA’s own research shows that a crackdown on advertising will have a limited impact, as most people find out about cryptocurrency elsewhere and very few are encouraged to actually buy it from an advert.”
She added: “The regulator’s data showed that only 2% of the people it questioned were led to buy crypto from an advert when they previously hadn’t planned to, and just 5% who were thinking about buying made the leap because of an advert.”
“Overwhelmingly people hear about crypto through social media, with the FCA finding that 39% of people saw ads for crypto on Instagram, Facebook or other social media, compared to 13% for traditional advertising in newspapers or TV.”
“While the move will help some people, it won’t stop the outright scams that have exploded off the back of Bitcoin and other cryptos soaring in price. What would have a far bigger impact is cracking down on social media accounts where people claim to have made their millions from buying Bitcoin, most of which are ultimately scams or glorified pyramid schemes.”
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