Regulation  

Should we ban cryptos?

Outside of regulation

The significant challenge of trying to stifle crypto entirely is neatly illustrated by the Financial Conduct Authority’s actions in respect of Binance Markets UK Limited, a subsidiary of the world’s biggest cryptocurrency exchange Binance.

In August 2021, the FCA published a stern supervision notice, which revealed that Binance Markets' permission to carry out regulated activities in the UK had been withdrawn and that, in the FCA’s opinion, Binance Markets was "not capable of being effectively supervised". While this might sound like the death knell for Binance in the UK (and indeed many reputable publications ran with headlines announcing that Binance had been ‘banned’), in reality it made little practical difference.

Buying and selling cryptocurrency itself (as opposed to derivatives such as futures or options based on the value of cryptocurrencies, or securities such as crypto ‘stock tokens') is not a regulated activity in the UK.

As such, the core Binance cryptocurrency exchange (not provided by Binance Markets, or operated from the UK at all) can continue to serve customers in the UK unhindered, while the FCA is powerless to do more than warn consumers that crypto is not covered by the protections offered by regulated activities.

Regulators in other countries, limited by their jurisdictional reach, will face similar problems in trying to tame a beast that was built to avoid centralised control.  

These examples illustrate the difficult balancing exercise faced in this still relatively nascent stage of cryptoassets’ development. Regulators need to pick a careful path between the competing interests of protecting consumers and preventing money laundering, while recognising opportunities and encouraging innovation.  

Lack of consensus 

What is clear is that cryptocurrencies and their perceived risks are a worldwide issue, and unilateral attempts to address its challenges are bound to fail. At present, there is an evident and problematic lack of joined-up global thinking, as neatly demonstrated by one country (China) banning what another (El Salvador) has adopted as legal tender.

While there is no quick fix, it is right to say that any hope of suppressing cryptocurrency entirely is almost certainly in vain. Furthermore, significant differences in the approach to regulation are very likely to undermine each other.

As such, there will need to be a much greater degree of worldwide concession and compromise than is currently on offer if any meaningful regulation is to be achieved. That being said, crypto currently faces what may turn out to be a crucial point in its development.

Bitcoin and a handful of other market leaders are on the verge of becoming household names. However, crypto has yet to establish the kind of mainstream credibility that could turn it from a cult success to a global industry.