A rough guide to crypto regulation
Why it matters
Legal regulation of crypto markets is a good thing in that it will encourage investment and increase adoption. In other words, more people will invest in Bitcoin.
A few Bitcoin hardliners might say they don’t want regulation, but this is unrealistic. Regulation is coming, and there is nothing we can do about it.
Large investors such as pension and investment companies will never invest in crypto without regulation. The fear is, being sued in four or five years when the regulation finally is in place — and it turns out they broke the law.
Today, different areas of the world vary with regard to crypto regulation. Let’s look mainly at Europe, the UK and America.
Europe
In some ways, Europe is the most advanced regarding the regulation they have passed. They passed the MiCA regulation in May 2023. This creates a regulatory framework for most types of crypto, and the missing ones will be added as they go along. It’s heralded as a “good start”, which I agree with.
An important feature of MiCA which the US Securities Exchange Commission (SEC) would do well to observe, is that they have declared that tokens are generally not securities. This is important and sensible.
The MiCA regulations will take effect 18 months after they were passed, so “slowly but surely”.
The UK
Before he was Prime Minister, Rishi Sunak was Chancellor of the Exchequer (the finance guy). He made positive noises about the crypto space. He said the UK should encourage all areas of exponential technological growth — the crypto industry, 3D printing, electric cars, A.I., electric vehicles, self-driving vehicles, drone technology, etc.
Rishi is still very positive about all these technologies, as are at least a few of his ministers. How long crypto regulation will take, we don’t know. And there will be an election before the end of 2024 and probably a change of government. I haven’t heard from the Labour Party what they think of crypto. Fingers crossed thatsomething happens before then.
America
It’s a little bit surprising that America is the laggard as far as crypto regulation goes. The American story, in summary, is: the central (which they call federal) government is anti-crypto, whereas a number of US states are extremely pro-crypto — eg Texas, Wyoming and Nevada.
The American SEC is making very anti-crypto noises. Some suggest this is because they see the dollar’s importance declining (which is undoubtedly correct) and that they are running scared. It’s the equivalent of putting their fingers in their ears and going “La la la”.
The SEC — which regulates securities — says: “All crypto tokens are securities”. This is like: “To a carpenter, every problem looks like a nail”. I’d suggest it’s rather childish — “toys out of pram-ish!”. In the unlikely event that the courts say the SEC is right, all existing crypto exchanges will be put out of business. Ridiculous. Happily, American courts will likely find them wrong.
America has a couple of other bodies regulating finances, including the CFTC, which regulates commodities. This makes US regulation more complicated. But eventually, they will work out a sensible way, no doubt. It looks like this will not be until the courts give the SEC a bit of a smack (don’t worry — not too hard).
Conclusion
Regulation is good for crypto and for increasing crypto adoption. As adoption increases — for example, as we get over 50 and 60% of people owning Bitcoin — this will undoubtedly create upward price pressure.
Pension and investment companies would LOVE to invest a few per cent of their funds into Bitcoin. This is because they see Bitcoin has a reasonable chance of increasing in price massively, so they don’t want to miss that action. That’s their job. After regulation takes full effect, there will be a mad rush of money into crypto, multiplying its “market cap” many times. Crypto prices will rocket.
It’s a little strange, the American central authorities are dragging their feet: but it’s not the first time London has cleaned up when the US financial sector has been looking at its shoes; London’s financial markets are highly innovative in new situations. It could be time for the UK to shine — just as they did in 1955 when the UK’s Midland Bank’s people invented the virtual dollar — the “Eurodollar”, while the Americans looked on. Within a few years, this completely synthetic Eurodollar market was bigger than the real dollar market!
Let’s see if the UK finance boffins can pull it off again. We know they can move fast when they want to — and I’d think a government of any stripe would welcome the benefit for economic growth.
