Bank of England Details Regulatory Stance On Crypto

Cryptocurrency investors far and wide have anticipated the announcement of industry regulations, largely viewing them as an inevitability and somewhat of a necessary evil.  The United States government is taking a relatively hands-off approach to crypto with minimal regulations.  The laissez-faire stance announced earlier this month generated even more interest in the alternative stores of value.  

The Bank of England recently revealed its interest in establishing a regulatory approach to cryptocurrency.  Let’s take a look at what the regulatory framework means in the context of cryptocurrency investing.

The Bank of England’s Potential Crypto Regulatory Framework

The Bank of England’s cryptocurrency regulatory framework announced on Thursday detailed how the country will structure the trading of crypto assets.  Though the sector is still in its infancy, its fast growth has necessitated what many determine to be justifiable government interference, albeit to a limited extent.  

The logic in establishing a regulatory framework for crypto is that it will provide utilitarian financial stability for a volatile industry characterized by fluid 24/7 trading.  Furthermore, the Bank of England’s cryptocurrency regulation is also somewhat warranted as there is a growing concern that these alternative value stores might be used as a vehicle to bypass sanctions inflicted on Russia and other totalitarian regimes around the world.  

It is worth noting the value of cryptocurrency increased shortly after the United States implemented economic sanctions against Russia.  Russians scooped up the alternative value stores while their domestic currency known as the rouble dramatically declined in value.

Crypto assets have been largely unregulated as they are not considered to be within the parameters of existing regulations on the books.  The alteration to the language of the laws pertaining to crypto will bring the alternative currencies within the scope of the United Kingdom’s rules pertaining to securities.  The country’s finance ministry is currently examining this opportunity, insisting any such changes will be made in the spirit of economic stability that benefits the greater good.

Regulation With Equivalence

Proposed cryptocurrency regulation will likely be implemented in accordance with equivalence.  Equivalence means the financial services related to cryptocurrency perform functions that are similar to current financial services.  Therefore, those financial service should be subjected to similar laws.  

Sam Woods, the Deputy Governor of the Bank of England, recently reached out to lenders to discuss crypto, potential regulations and the spike in interest from financial institutions.  However, the Bank of England has narrowed its focus on mitigating banking sector crypto risk until the specifics of regulations can be agreed upon.  

The Crypto Industry Continues to Grow

Crypto as a whole grew a whopping tenfold on a global scale between the start of 2020 and the winter of 2021.  At the moment, the crypto industry is worth an aggregate $1.7 trillion dollars, equating to just under 0.5% of worldwide financial assets.  All in all, slightly less than 18,000 unique cryptocurrency asset tokens exist.  The rapid expansion of crypto has prompted bank boards to fully consider the risks posed by these alternative value stores, meaning the time is right to strategically alter risk management systems and strategies. 

Backing Crypto With A Fiat Currency

There is some discussion among powerbrokers in the British financial industry to establish a major stablecoin.  Stablecoins are cryptocurrency assets that have the full backing of an asset such as a fiat currency.  

It is quite possible a crypto regulatory framework that includes a stablecoin will be established in the near future to stabilize the industry.  A stablecoin would also help mitigate risk to the point that crypto proves appealing to the masses in England and beyond.  Stay tuned for more details pertaining to England’s shift toward regulating the crypto market.

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