Crypto Update: Bank Chief Pins Future Of Crypto On ‘Iron’ Regulation

What’s the latest news from the world of cryptocurrency? We monitor all the latest moves and keep you updated regularly with the key developments.

Please be aware that the UK financial regulator, the Financial Conduct Authority, has issued repeated warnings about the risks faced by those who invest in cryptocurrency, stating that all funds are at risk and investors could lose everything.

Cryptocurrency trading is not regulated in the UK and no compensation arrangements are in place.

Got a crypto story to share? Email: mhooson@forbesadvisor.com

13 July: Strong Regulation Will Foster Innovation To Avoid Future Crypto Winters

Sir John Cunliffe, deputy governor of the Bank of England with responsibility for financial stability, has warned of the need for greater regulation of the crypto market as a result of the current ‘crypto winter’, which has seen dramatic falls in the value of assets.

In a speech at the British High Commissioner’s Residence in Singapore, Sir John said: “In recent months we have seen a dramatic bout of instability and losses in crypto markets – dubbed by some commentators as the ‘crypto-winter’.

“A widespread collapse of crypto-asset valuations has cascaded through the crypto ecosystem and generated a number of high-profile firm failures. The totemic indicator of the crypto winter is that Bitcoin, the signature crypto asset, has lost 70% of its value since November.

“Regulators, of course, have not been slow to comment. And, true to type, I want to pull out four lessons I think we can draw from this episode:

• technology does not change the underlying risks in economics and finance;
• regulators should continue and accelerate their work to put in place effective regulation of the use of crypto technologies in finance;
• this regulation should be constructed on the iron principle of ‘same risk, same regulatory outcome’ ;
• crypto technologies offer the prospect of substantive innovation and improvement in finance. But to be successful and sustainable innovation has to happen within a framework in which risks are managed: people don’t fly for long in unsafe aeroplanes.”

Sir John said the success of crypto depends on effective regulation: “It would also be unwise for innovators and the authorities alike to forget that to be successful and sustainable, technologically-driven innovation needs regulation. 

“A succession of crypto-winters will not, in the end, help the deployment and adoption of these technologies and the reaping of the benefits that they may offer. History also has examples of technologies that have been put aside/ shunned because of dramatic early failures. While the causes of the Hindenburg Zeppelin disaster are still debated, it is very probable that the general development of the use of hydrogen in transport was put aside for decades as a result.”

Commenting on the speech, Petr Kozyakov, CEO of payments firm Mercuryo, said: “It’s incredibly encouraging to see a leading Bank of England official acknowledging the importance of regulation in fostering innovation in crypto and acknowledging the great potential of this technology.

“We echo his sentiments – as does the wider public and business community. Two thirds (68%) of British people tell us they want to see cryptocurrency become more regulated, while 24% of UK firms that don’t currently use cryptocurrency cite a lack of regulatory clarity as a reason why.

“As more regulators and governments mobilise to introduce regulation I hope they ensure that industry leaders are part of the process. We want to be part of the solution to ensure the frameworks being explored work for everyone. 

“Far from a Hindenburg disaster, we want to see crypto soar into orbit, with effective regulation the key to opening it up to even wider adoption and utility.”

11 July: Crypto Hawk Alder To Chair UK Financial Watchdog

The UK’s troubled financial watchdog has named a Hong Kong regulation veteran as its next chairman, writes Andrew Michael.

Ashley Alder will join the Financial Conduct Authority in January 2023 on a five-year term when he takes over from interim chair, Richard Lloyd.

Mr Alder’s appointment, decided by HM Treasury, was one of the first announcements made by Nadhim Zahawi, who became Chancellor of the Exchequer last week.

A lawyer by background, Mr Alder has run Hong Kong’s Securities and Futures Commission (SFC) for the past 11 years having initially joined the organisation as director of corporate finance.

During his time at the SFC, he helped introduce measures to strengthen the territory’s financial system, pushed for greater focus on climate finance, and imposed sizeable fines on banking giants.

Mr Alder’s appointment comes as the FCA attempts to reconfigure itself after criticism over its handling of recent scandals including the failure of Woodford Investment Management, as well as the collapse of mini-bond provider London Capital & Finance.

The FCA is responsible for authorising more than 50,000 financial firms. Its brief extends to ensuring that consumers are treated fairly and that markets run smoothly. It also has the powers to fine regulated companies and individuals and can bar miscreant bankers, brokers and advisers from conducting financial business.

As a regulator, Mr Alder is known for his hawkish stance on cryptocurrencies. These are likely to chime with the FCA’s current view, given that the regulator has issued multiple warnings to consumers in connection with cryptocurrenices over the past two years.

The FCA has multiple concerns about high-return investments based around cryptoassets. These include consumer protection, price volatility, product complexity, charges, and the way such products are promoted.

But earlier this year, the then Chancellor and now prospective Conservative Party leadership contender, Rishi Sunak, announced his intention to make the UK a global hub for cryptoasset technology and investment, potentially stoking tensions between the Treasury and the FCA, given the regulator’s stance.

However, the appointment of Mr Zahawi, another prospective Conservative Party leadership contender, as Chancellor has left questions about the direction of the UK’s crypto policy. 

5 July: Crypto Ownership Numbers Double Year On Year

The number of UK adults that hold or have held cryptocurrencies has almost doubled since last year, according to new analysis, writes Mark Hooson.

HMRC and Kantar Public’s research found 10% of UK adults said they had ever held cryptocurrency. That figure is up from 5.7% in January 2021, based on Financial Conduct Authority (FCA) data.

Men were more likely to have held crypto than women (13% compared to 6%). Younger people were more likely to have held crypto than older cohorts, and people in ethnic minorities were more likely to have held crypto than white people.

Of those who held crypto assets when the research was conducted, 85% were aged 25-44 and 90% had annual incomes of more than £50,000.

Other noteworthy findings included:

• almost one in five (18%) had sold off their entire holdings
• 11% of those who held crypto assets had purchased stablecoins
• almost a third (30%) had invested less than £100
• more than half (52%) bought into cryptocurrency as a ‘fun investment’
• almost one in 10 (8%) invested in cryptocurrency to ‘gamble’
• more than 4 in 10 (43%) of holders had money saved in an ISA account
• most (63%) of crypto owners who sold assets said they made a profit
• 14% of sellers lost money and 14% broke even
• 24% made profits of £500 or less
• 3% lost more than £5,000.

5 July: EuroCoin Launched With Peg To Euro

A new stablecoin pegged to the euro (EUR) has been launched on the Ethereum blockchain, writes Mark Hooson.

EuroCoin (EUROC) is the first major euro stablecoin. The asset is backed by full reserves of the euro, meaning €1 is held in reserve for every EUROC issued. As a stablecoin, the value of one EUROC should remain at one EUR.

The stablecoin is live on a few exchanges, including BitPanda, Bitget and Huobi Global, and is expected to go live on Binance US, Bitstamp and FTX by mid-July. 

EUROC’s issuer, Circle, expects it to launch on other blockchains by the end of the year.

Circle CEO and founder Jeremy Allaire said: “There is clear market demand for a digital currency denominated in euros, the world’s second most traded currency after the US dollar. 

“With USDC (US dollar stablecoin) and EuroCoin, Circle is helping unlock a new era of fast, inexpensive, secure and interoperable value exchange worldwide.”

Even though stablecoins are meant to maintain their 1:1 pegging with the currency they’re associated with, market volatility in 2022 has seen some, such as Terra and Tether, lose their parity with the US dollar.

1 July: European Union Agrees Framework To Regulate Crypto

EU regulators will attempt to tame the “wild west” of the cryptocurrency market with a new regulatory framework agreed this week.

Under the Markets in Crypto-Assets (MiCA) initiative, crypto issuers and exchanges will have to follow new rules if they want to operate within the region. 

The measures are intended to protect consumers. They include provision for asking stablecoin issuers (stablecoins are linked to fiat currencies such as $ and £) to have sufficient liquidity in their reserves to cope with mass withdrawals, as well as daily transaction limits on stablecoins that become too large.

The European Securities and Markets Authority (ESMA) will be able to ban or restrict platforms that fail to protect consumers.

Announcing the news, European Parliament lead negotiator Stefan Berger said:…