Cryptocurrency ownership in the UK jumped from 2.3 million in 2021 to 4.97 million in 2022/3, amounting to almost 10% of the adult population, according to the Financial Conduct Authority (FCA).
It is clear that with a $1.2 trillion market value and with volumes trading north of $30 billion a day, crypto is not going to fade away any time soon. The regulatory chaos surrounding the crypto markets is not going away either.
Gary Gensler, chair of US regulator the Securities and Exchange Commission (SEC), has declared war on Coinbase, accusing the Nasdaq-listed company of operating illegally as an unregistered national securities exchange.
If found in breach of these laws, Coinbase faces hefty fines and the closure of its business. Not great news for a company that floated 18 months ago with a market cap of $85billion (now $13 billion).
The SEC has also taken a swipe at the giant exchange Binance, saying it co-mingled client money.
In contrast, Hong Kong recently issued rules allowing retail investors to trade crypto, as a prelude, perhaps, to China reversing its ban.
Earlier this month, giant US fund BlackRock announced it had filed for a new Bitcoin ETF, and US venture firm Andreessen Horowitz announced its first international office in London for its dedicated $7.6 billion crypto venture division.
It’s tough to keep up with the highs and lows. Rishi Sunak has emphasised his desire for the UK to be seen as a global crypto centre. There are enormous challenges around this aspiration. Not least how the US enforcement against Binance, Coinbase, Gemini and a host of other crypto companies in the line of fire pans out.
Which brings us to the Treasury Select Committee findings on cryptocurrency, published last month. Its chair, former JP Morgan executive Harriett Baldwin MP, left us in no doubt that she wasn’t a fan.
The committee produced some bizarre conclusions.
It suggested that cryptocurrency should not be regulated within financial services as this would afford it a “halo” effect of respectability.
Baldwin doubled down, claiming that 2022 exposed cryptocurrency “as the fool’s gold many thought it was all along”, that crypto markets “resemble gambling more than financial services” and she topped it all off with the statement “crypto has become central to the activities of criminal fraudsters”.
Where do I begin unpacking this?
Tarring all cryptos with the same brush is as nonsensical as it would be for all equities.
It isn’t the job of a regulator to put investors off risk, it’s the regulator’s job to inform investors of the risks.
If regulation gave a “halo” effect to investments, then someone needs to explain to me the securitisation of subprime mortgages (a regulated asset class) responsible for the 2008 market crash.
It’s true that crypto took a hit in 2022, but it was not alone. Microsoft’s market capitalisation fell $700billion, Meta lost 70% of its value, and the combined worth of the companies on Nasdaq fell $7.4 trillion.
Yes, members of the Treasury Committee, crypto is just like “gambling” — or to put it another way “investing”.
As for criminal activity, it wasn’t a crypto company that was fined $1.8billion for laundering Pablo Escobar’s Colombian drug money — it was, incredibly, HSBC.
I am not an apologist for the failings of crypto. The industry will continue to clash with regulators until it has support from retail investors who understand it well enough to champion it.
That support will only come once people, not tech wizards and maths geniuses, but most of us, understand the benefits of digital currencies for ourselves and for society more generally.
Legislators are driven by “movements” that demonstrate benefits they can stand by. Crypto needs to focus on the demonstrable benefits of its technology if it wants the respect of regulators.
