Crypto’s collapse highlights UK policy tensions


It was an awesome moment. Just five weeks after Treasury Secretary John Glen stood up and made an unexpected argument for the UK to be “the best place in the world to start and scale cryptocurrencies”, cryptocurrencies experienced a messy collapse that sparked questions about all the effort.

First, a large cryptocurrency slip has destroyed about $ 1.8 billion in circulating value since last November’s peak and bolstered the point that most of these tokens are too volatile for anything but speculation.

So the implosion of the supposedly stablecoin terraUSD, a token that used an algorithm to keep its value in dollars, and the depegging of tether, the largest and seemingly fully guaranteed stablecoin, called into question what was supposed to be the face responsible for cryptocurrency. which the UK at least wanted to legislate in the first place.

But Glen’s speech, accompanied by the artificial announcement of a non-fungible card from the Royal Mint, promised that there was much more to come to make the UK a “global hub” that was “pro-innovation”.

This was a clear political orientation that could no longer close the cryptography of the system, but should be regulated. The problem is, no one is sure what that really means, certainly not now.

It is not entirely clear why the UK has decided to go for a project of such questionable value and limited benefit in the real world. But it is enough about Brexit. Since leaving the EU, the debate on financial policy has been marked by the political desire to be international leaders. And the cryptographic conversion may have been due to something that kids no longer call FOMO.

The EU, after all, had already begun to define the regulation for cryptographic assets in 2020, which is controversial in itself. After being blocked in the UK, the Binance cryptocurrency exchange has found a warm welcome in France.

Overcoming one is a bad basis for standard-setting, especially when there is real uncertainty about what good policy is or even what it means to regulate here. The main motivation is consumer protection, systemic stability or the establishment of the UK as a boiling point for the crypto business, and how should we deal with the inevitable trade-offs between those concerns?

For starters, the regulator thinks it has already been walking the line between encouraging innovation and setting some ground rules. The Financial Conduct Authority (and Glen) is targeting the worldwide simulated regulatory sandbox, which has supported more than 50 blockchain start-ups. He has been registering groups as part of an anti-money laundering regime. You are likely to have powers over how cryptographic products are promoted.

The industry, meanwhile, thinks the FCA has already been tough to the point of crushing progress. “Complete nightmare” was an adviser’s verdict on the registration process, which was approved by only a third of the applicants. Regulated cryptography, for some true believers, may also be an oxymoron: land, for example, thrived because it was a decentralized stable currency rather than one tied to fiduciary assets.

So far, the UK government has not chosen a clear side. Even with Sam Bankman-Fried, the cryptocurrency boy, saying that bitcoin has no future as a payment network and that most tokens have no obvious value, the question is how many cryptocurrencies should really “regulate” to make the most of . blockchain in the financial system.

Regulators last week combined the execution of their first “CryptoSprint” ideas that generated ideas with obscure warnings that asset buyers should “be prepared to lose all the money they invest.” With a view to future scandals, they want a clear political direction (i.e. cover) on where the lines should be drawn, even on whether any cryptocurrency assets should be covered by the Financial Services Compensation Scheme.

The fall in the market will increase regulatory requests and may accelerate action. But it also highlights tensions in giving de facto regulatory blessing to products that authorities really think should only be used by wealthier or professional investors, but that many consumers are buying with abandonment independently.

helen.thomas@ft.com
@helentbiz





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