Is it time to look at cryptocurrencies again?

Phil Hall, Head of Public Affairs & Public Policy at AAT, makes some considerations on the approach of British regulators to the increasingly popular trend of investing and using cryptocurrencies.

Warning from the FCA

Cryptocurrencies have been around for more than a decade, with "Bitcoin" first introduced in 2008 and many more having entered the market since then. As recent articles have pointed out, they cannot simply be dismissed as a fad, but rather as a sector of limited but growing importance.

In recent years, regulators have taken an increasingly tough stance on cryptocurrencies, for good reason.

In 2019, a G7 report on stablecoins found that they pose a serious threat to a number of public policy areas, including "challenges to fair competition, financial stability, monetary policy and, in the extreme, the international monetary system."

In the UK, in January 2021, the FCA strongly warned that cryptocurrencies are such a high-risk investment that if consumers invest in this type of product, they should be prepared to lose all their money. There can be no stronger warning than this, but does anyone notice?

According to research released by the Financial Conduct Authority (FCA) in June, over 2 million adults in the UK own digital currencies, an increase of 400.000 from last year.

Rather worryingly, the same report revealed that 14% of cryptocurrency investors have used some form of loan to invest.

Ban for Binance

The FCA's hard line on cryptocurrencies is now extending to action. Just a few weeks ago, it banned Binance, the world's largest cryptocurrency exchange, from conducting any "regulated business" in the UK.

However, the action is not as broad as it seems at first glance. While this means that people in the UK are no longer allowed to use Binance's services to bet on whether the price of a cryptocurrency such as Bitcoin will rise or fall, there is nothing left to legally prevent people from using the Binance exchange to buy and sell cryptocurrencies, because doing so is not a regulated activity.

The Bank of England prepares its digital currency

With regulatory warnings increasing in frequency, pitch and severity, it seems rather contradictory that the Bank of England continues to play with the idea of invest in its own digital currency: a Central Bank Digital Currency (CBDC).

As early as 2018, the Bank of England confirmed that its financial policy committee had evaluated cryptocurrencies and concluded that they currently do not pose a risk to monetary or financial stability in the UK, but that they do pose a risk to investors and , like the FCA, warned that anyone who buys cryptocurrency assets should be prepared to lose all their money.

In March 2020, the Bank then launched a discussion paper on the subject of setting up a CBDC and an update provided just a few weeks ago confirmed that the Bank of England and the HM Treasury have created a CBDC Taskforce to coordinate exploration. of a potential UK CBDC and that research is ongoing.

The bank is keen to point out that a CBDC would be fundamentally different from cryptocurrencies or cryptocurrencies because cryptocurrencies like Bitcoin and Ethereum are privately issued rather than issued by a central bank. A £ 5 CBDC would be worth £ 5, securing the intrinsic value of the currency in a way that private issuers cannot.