As more and more people have decided that they want to invest in cryptocurrencies, they have also attracted the scrutiny from a range of regulators. They are interested in how the cryptocurrencies could be used a speculative instruments and hence should have some sort of regulations.
We all know about the fact that the SEC now wants to view tokens that are issued through ICOs as “securities”. This would mean that they have to meet the requirements that the SEC lays out in terms of their securities laws.
Yet, how will this affect regulations in the UK?
The Bank of England has said that these digital assets should be considered as vastly different from standard currencies such as euros or pounds. This is because they are only used to a limited degree and are for only a small amount of people. You also have the UK’s consumer watchdog that wants to monitor developments and will report back later in the year.
The main problem that these bodies have is that these tokens are acting much like investments. As they increase by such a high rate, they appear to be that much more alluring to those who want to hold them.
These investors are either buying the coins on exchanges or are using CFD and option providers. One there are a range of regulated UK option brokers that are offering the cryptocurrencies in their platform. Although these give the trader exposure, they are merely a derivative.
Better Regulation Encourages Adoption
There are many startups in the cryptocurrency space that would like to grow but they are looking for signs from the regulator about how they can actually grow. For example, Dr Cathy Mulligan from Imperial College says that most of her cryptocurrency students are looking for some guidance from the regulators.
They also noted that in the UK, there has not been all of the usual “KYC” and anti-Money Laundering regulations that have been required by a host of other startups in other countries. In countries that have set out rules with regards to cryptocurrencies, there seems to be an increasing amount of startups who move there.
There is also evidence of the great amount of users who actually hold Bitcoin. For example, there are estimates that about 5.8 million people have invested in cryptocurrencies. Although there is no way to see how many of these were in the UK, Coinbase says that they have seen a great increase in the demand for cryptocurrency trading.
One of the many misconceptions that regulators have about something like Bitcoin is that it is “anonymous” and no one can determine where the money has come from. This is not true as the blockchain is a public record. Anyone can see who paid what and how much in the recorded ledger.
There are many in the UK that would like to see the cryptocurrency being used as an actual medium of exchange for a number of different goods and services. However, before it can actually reliably take that moniker, it will have to accept some sort of regulatory oversight.
There is also a great opportunity for the UK to offer itself as a great alternative for cryptocurreny innovation in a post brexit world. This would no doubt give the post EU Britain a boost as these technology startups look for favorable regulatory regimes.
Banks Making Business Difficult
One of the obstacles to Bitcoin adoption in the UK is the banks that are still shunning a number of companies from Bitcoin exchanges to start ups. There are examples of banks such as Metro Bank which have dropped accounts of Blockex.
Indeed, it is something that was also raised by the Financial Conduct Authority (FCA) has raised issues with. They were not happy with the notion that banks would restrict companies on a wholesale basis. These, the claimed, created a significant barrier to entry.
One of the major factors that are driving these bank’s thinking are the same stereotypes that have persisted for a long period of time. The managers seem to still think that these coins are associated with money laundering and drug dealing.
This skepticism comes at a time when a number of financial institutions such as hedge funds have started to invest in Bitcoin. Similarly, the CME has just announced that they will be allowing Bitcoin futures to be traded on their exchanges by the end of the year.
Hence, there seems to be a mismatch amoungst a number of institutions and individuals in the cryptocurrency space. Hopefully as the FCA and Bank of England start to introduce some new regulations, these banks would feel more comfortable with crypto startups.
As more and more people gather interest in buying, trading and transacting with cryptocurrencies, so too will the scrutiny of the regulators. However, more cryptocurrency regulations in the UK will most likely be a great benefit to the whole ecosystem.
The regulation will allow a framework for startups to raise funding, conduct business and open accounts. It will also create a perception amoung the general public that Bitcoin is viewed as a legitimate medium of exchange and no longer the realm of dark web users.