UK On-track for Crypto Regulation
The government is setting out plans that it hopes are ambitious enough to regulate cryptoasset activities, to provide confidence and clarity to consumers and businesses alike. As is common in emerging technology markets, the crypto sector continues to experience high levels of volatility and a number of recent failures have exposed the structural vulnerability of some business models in the sector. Cryptocurrencies have a low barrier to entry, meaning that anyone can start investing in them with a relatively small amount of money. This is in contrast to traditional investments, such as stocks and bonds, which require a larger upfront investment. Digital assets can be bought and sold online making it accessible to anyone with an internet connection.
A further attractive feature for investors is exactly the lack of regulatory control that draws investors to trade. A lot of money has been lost in crypto in recent months. The value of Bitcoin, the most well-known cryptocurrency, has fallen by more than 60% since its peak in November 2021. Other cryptocurrencies have also seen significant losses. There are real-world reasons for the recent losses in crypto. One reason is a reaction to the raising of interest rates, which has made it more expensive to borrow money. This has made investors less willing to take on risk, including investing in cryptocurrencies. Another reason for the losses is that there have been a number of high-profile scams in the crypto industry. These scams have made investors more cautious about investing in cryptocurrencies. More recently, the Financial Conduct Authority working in joint operations with Digital Intelligence and Investigation Units have been closing down unregistered crypto-ATM machines in London & Leeds, having already reported that none of the crypto providers registered with the FCA are providers of ATMs.
Cryptocurrencies are traded on decentralised exchanges with no controlling central authority, making them more accessible to people in countries with unstable financial systems. The lack of control or inherent freedom available in being able to trade without any oversight is a huge draw to liberty seeking traders and criminals engaged in hidden activities alike. From this perspective, crypto are technologies that replicate existing means of exchange in the vein of traditional finance and not a new system created to be independent of government.
However the losses in crypto have had a significant impact on the industry. A number of companies have gone out of business, and thousands of jobs have been lost. The losses have also made it more difficult for new companies to raise money.
Proposals to strengthen the rules around financial intermediaries and custodians, which have responsibility for facilitating transactions and safely storing customer assets, will be welcomed by some but not by the hardcore followers and investors.
