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In recent times there has arguably been a global shift in the regulatory attitudes and action towards cryptocurrency. What once was considered a fringe currency is gradually being brought into the mainstream and legitimised by regulation.
In the past six months, the UK government has created a Crypto and Digital Assets Group, announced that it is “open” for crypto business, and launched a consultation into an insolvency regime for cryptocurrency, specifically stablecoins.
A recent report by CUBE has explored global regulatory data to understand the shifting regulatory attitudes for crypto. It has found that in four years alone, there has been a monumental uplift in regulatory messaging. In 2018, global financial regulators issued fewer than 150 Issuances that made reference to crypto-related topics. In 2021, the figure stood at 9,872 global regulatory Issuances. In the first five months of 2022, global regulatory Issuances stood at 4,666 – suggesting that 2022 will be the most active year yet for crypto regulation.
In March 2022 the risks of cryptocurrency were realised when terraUSD (UST) – a stablecoin that should be tethered to the US dollar – fell below $1. The crypto token that supported UST, Luna, lost all of its value in a single day. The following day, the value of Bitcoin dropped below $30,000 for the first time since July 2021, and days later investors pulled $7 trillion out of another stablecoin, Tether.
This was a bad week for cryptocurrency. Many lost thousands, if not millions, in investments while the apparently stability of stablecoins was debunked. However, some saw the week’s volatile movements as a much-needed correction to cryptocurrencies – and a moment of reckoning for global regulators. Cryptocurrency has now amassed enough retail access to warrant regulation, and it is big enough to soon see its volatility affecting global financial stability.
There has long been a debate about regulation for crypto. Purists have argued that it would render the libertarian nature of crypto null and void. Others worry it may hamper innovation, or damage competition among regions. Advocates for regulation say that it will legitimise the currency, offer consumer protections, and in-turn open up unbanked communities and new opportunities for finance.
Different regions are taking different approaches to regulation, some are opting for a commercial style open house in a bid to monopolise on the potential economic benefits. Others are operating a closed-book approach, welcoming crypto to an extent but ensuring that crypto-related businesses meet certain requirements.
The UK’s Financial Conduct Authority (FCA) is one such country, which introduced a Temporary Registration Regime for crypto in 2020. Since then, it has opened more than 300 cases against unregistered crypto firms. It is perhaps unsurprising then that CUBE’s data shows the FCA to be the most active regulator with regard to publishing regulatory insights (soft content including blogs, speeches, consultations etc) related to cryptocurrency. Over the past four years, it had published more than 329 crypto-related insights. The US’s Securities and Exchange Commission (SEC) is the second most active regulator in this space, having published 223 insights.
While the FCA and the SEC are the regulators that are talking the most about cryptocurrency, we see a different picture with regard to the regulators that are publishing hard law, legislation, and regulation. The Financial Services Agency of Japan (FSA), for example, has published 88 pieces of crypto-related law and regulation, compared to only 43 from the FCA. This will come as no surprise to those who have watched Japan’s approach to cryptocurrency, recently becoming the first countries in the world (and the largest economy) to legitimise stablecoins.
As we move into the second half of 2022, we stand at the precipice of regulatory change for cryptocurrency. With traditional banks such as Fidelity and Nomura now building crypto into their traditional product offerings, volatile crypto markets are becoming too intertwined with traditional finance to remain under-regulated.
The challenge now is for global governments and regulators to create a regulatory regime for cryptocurrency that is applicable and enforceable on a global scale. This will not be an easy task and will take cooperation, collaboration, and innovation. A global regulatory framework for crypto may be some way off yet. However, as we’ve seen from recent market movements localised regulation is imminent. The challenge for the compliance team will be piecing it together.
To find out more, download CUBE’s latest industry data report: “Cryptopia: Regulation and the Libertarian Dream”.
22.07.22
Jennifer Clarke, Publications Manager, CUBE
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17.08.22
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