Well folks, it looks like the UK government is finally taking crypto regulation seriously. They've just published proposals for crypto-asset regulation in hopes of managing the risks in this somewhat tumultuous industry. You see, the crypto sector has had a rough go of it in the past year, with assets declining by about 75% from their peak value of around $3 trillion in November 2021.
The government estimates that as much as 10% of UK adults now own some form of crypto, and they're not taking any chances.
Existing Regulations
The plan is to use existing regulations for the financial industry rather than creating a whole new bespoke regime.
The Treasury says that this will allow crypto to benefit from the "confidence, credibility, and regulatory clarity" of the existing system for financial services, which is set out in the UK's Financial Services and Markets Act 2000.
The idea is to create a level playing field where "same risk, same regulatory outcome" is the principle.
Now, I know some of you crypto purists out there are cringing at the thought of the government getting involved, but hear me out.
The Treasury is proposing rules on crypto-asset promotions that are fair, clear, and not misleading.
They also want to enhance data-reporting requirements, including with regulators, and implement new regulations to prevent "pump and dump" schemes where an individual artificially inflates the value of a crypto asset before selling it.
The idea is to mitigate the biggest risks of crypto technology while still harnessing its advantages.
That being said, I don't think anyone should expect this to be a smooth process.
The government's proposals are currently being consulted on, and I have a feeling it's going to be a fiery debate with many different groups weighing in on how to tame the wild beast of Bitcoin and other digital coins. Part of the appeal of cryptocurrency is its independence from traditional financial networks and moves to allow establishment control will certainly infuriate a core group of true believers.
But, with the right form of regulation, others will argue that the industry could truly blossom.
Crypto Winter
The recent crypto winter/bear market has raised questions about whether the industry can ever be effectively regulated.
The Treasury Committee has heard evidence of "truly Wild West behavior" but also recognizes that there is valuable technological innovation occurring that could benefit the UK economy.
Regulators are closely watching the situation and want to ensure that consumers don't think cryptocurrencies are any less risky just because they're regulated.
European head of digital assets at Wisdom Tree, Jason Guthrie, says the sector has a bright future but cautions that "the devil will be in the details."
He absolutely welcomes regulators looking at cryptocurrency and believes that the right regulation will be in the interests of the industry as well as customers.
Having a solid regulatory framework and enforcement capabilities is crucial for consumer confidence.
Pros and Cons of Crypto Regulation
On one hand, clear crypto regulations could lead to mass adoption by some of the top companies in the world, giving the industry a much-needed boost in credibility.
A proper regulatory regime could also encourage entrepreneurs in the crypto space to open for business in the UK instead of setting up shop elsewhere.
On the other hand, heavy-handed regulation could stifle innovation and drive crypto businesses to operate in offshore jurisdictions that don't impose equivalent market abuse rules.
It's a delicate balance, and I have a feeling the government's consultation on their proposals is going to be a heated one.
The government's consultation on their proposals will close on April 30th, and any responses will then be considered by ministers. Once any legislation is put to Parliament, it will be up to the Financial Conduct Authority to draw up the detailed rules that the sector
Matt is the founder of TechMalak. When he's not buried face-deep in the crypto charts you can find him tinkering with the latest tech gadgets and A. I tools. He's a crypto investor and entrepreneur. He uses a mixture of A.I and human thought and input into all his articles on TechMalak, further merging man with machine.
