eToro: It’s time to regulate crypto – here’s how to do it

The Bill is expected to deliver the first actual piece of regulation covering the UK’s crypto market, focusing principally on stablecoins. 

While we are yet to see the actual contents of the Bill, what is evident is that the government now intends to regulate stablecoins when they are used as a means of payment – an all-encompassing measure when you consider how and why they are used.

Stablecoins are the lubricant that grease the wheels of the cryptoasset industry and market. They provide essential liquidity and fungibility to other cryptoassets while giving users, businesses an essential on-ramp into the sector’s ecosystem. 

Stability issues have been raised in recent months, especially with the terra/luna collapse. This episode more than anything highlights how essential transparency is for the crypto  sector, and the stabilising hand that robust regulation will provide. 

This is an important milestone for the crypto sector as the UK looks to become a global crypto hub. Regulation, long-argued over in the crypto sphere, is an important validation for a sector that has battled image problems and is under great pressure thanks to market falls in recent months.

But regulation, far from quashing innovation or restricting the freedom of projects to develop, will set essential ground rules and protections for market participants – from businesses and innovators to investors and end users.

There are five key areas we see that future regulation must achieve. Those include:

  1. Enhanced consumer protection and ultimately, an alignment of the crypto protective framework with that of existing ‘traditional’ investments.
      
  2. A level playing field for UK crypto operators, which discourages investors seeking lesser protected ‘offshore’ providers.
  3. Clear, decisive guidance regarding future UK crypto regulation in respect of non-stablecoins. Although the Treasury and FCA don’t see as much of an immediate use-case for non-stablecoins – in particular exchange tokens – their mainstream appeal and adoption is evident, and regulation should be prioritised accordingly, not least to enhance consumer protection.
  4. Promotion of an environment which encourages financial inclusion for a broad range of clients.
  5. A clear message which portrays serious and believable intent to establish the UK as a leader in crypto regulation (and as a global crypto hub generally).

Market turmoil overreaction threat

These regulatory considerations are really important, but the context of the market conditions we are in at the moment could drown out important conversations over the right way to achieve them.

There is potential for heavy-handedness which would be the wrong approach, as it will stifle innovation, and force users and investors to reach for potentially unregulated, and therefore untrustworthy, options.

What is essential to remember in the current climate is that crypto is not a flash in the pan that will disappear overnight, it is an innovative sector like any other, which will move on from current market troubles and emerge stronger and healthier than before.

But this will only be achievable with the right regulatory approach in place. Ultimately through this bill, the Government is taking a view on the sector and aiming to be a leader in stablecoin regulation.

We must not forget that crypto is a global phenomenon, and jurisdictions around the world are setting out their stalls – be it to attract or deter – the sector from setting up in their back yards.

The City of London is a global financial hub and has been for many years. But get the next steps wrong and it may just miss out on the next stages of the growing universe of DeFi and crypto, and all the possibilities therein.

With the financial services sector the jewel in the crown of UK plc, it would surely be a hugely self-inflicted wound to get the rules wrong at this stage.

The government, and parliamentary scrutiny of the bill, must strike the right tone with the rules they’re set to legislate for. A robust and carefully considered regulatory framework is the only way to protect consumers while letting the sector thrive in the UK. 

Dan Moczulski is UK managing director of eToro

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