The Deputy Governor of the Bank of England has recently called cryptocurrencies a “threat” requiring “urgent action” to address it. It is not the first sign that the UK may become a firm outpost for crypto-skeptics.
Jon Cunliffe, the Deputy Governor of the Bank of England, claimed that cryptocurrencies pose threats to the entire financial sector. On the other hand, he admitted that crypto and DeFi technologies create services attractive to numerous investors.
There is a present concern that the Bank of England, following its top manager, will declare digital currencies an asset without intrinsic value, or, more precisely, with a price that at any moment may fall to zero.
“You don’t need to occupy a significant share of the financial sector to cause destabilization… When something in the financial system grows rapidly in a largely unregulated space, the regulators need to take notice and get down to business.”, — stated Cunliffe.
There was an exciting development in Great Britain over the summer. In mid-July, a survey by Ziglu Bank showed that one in ten British adults already own digital assets, and 11% are considering buying cryptocurrencies within the next 12 months. 29% of those ready to invest in cryptocurrencies cited their desire to test the market by spending a small amount. 27% mentioned the expected increase in the value of assets as a motive.
26% of potential investors were incentivized by the growing popularity of the crypto market; for 23%, it was a higher security level. 8% said they were encouraged to buy cryptocurrencies by others in their family. Among other reasons, the British willing to invest included the emergence of platforms through which access to cryptocurrencies became easier and cheaper, as well as improved regulation.
Earlier on, in January 2021, a study by the Gemini crypto exchange showed that over the previous year and a half, 13.5% of Brits had invested in cryptocurrencies. Later, in June, the British financial regulator Financial Conduct Authority (FCA) estimated the number of digital asset investors in the country to be 2.3 million. They are most popular among young people aged 18 to 29: for 45% of them, digital assets became their first investment.
Immediately following the publication of the Ziglu survey results, the FCA said it was concerned about the growing popularity of investments in digital currencies among young people. It was then revealed that FCA would spend $ 15.2 million on a marketing campaign intended to warn the population about the dangers of investing in cryptocurrency. The FCA CEO Nikhil Rathi remarked on how more and more young Brits see investment as entertainment. The head of the regulator called such behavior irrational, possibly leading to severe losses.
The FCA points out that most companies offering crypto trading services are not licensed in the UK, so investors will not be able to contact the financial official and claim compensation for losses. They also said that Binance, the largest crypto exchange by trading volume, cannot operate in the UK.
Shortly before this, the UK Advertising Standards Authority (ASA) had announced that it would strengthen control over cryptocurrency advertising. The regulator intends to suppress the publication of misleading advertisements for crypto asset investment. The ASA will mainly target online platforms and social networks.
But let’s get back to Jon Cunliffe and his fears. What kind of danger does he see coming from the cryptocurrency space? At least this official, unlike his American colleagues, is relatively straightforward and truthful. The Deputy Governor of the Bank of England explicitly stated that convergence points between traditional and crypto finance (custodian bank service, hedge funds with crypto on the balance sheet, stablecoins, and payment systems that integrate crypto) are gradually helping integrate crypto-assets into the financial system. As the cryptosphere expands, the number of those points increases, and crypto starts “infecting” other markets. It is especially likely in case of a crisis (which at this point seems inevitable).
“The registration and transfer of asset ownership is the core of the financial system’s role in storing value and conducting transactions. Crypto technology allows (although it doesn’t require) the recording and transfer of data without the banks or custodians that historically performed this function”, – is Cunliffe’s position according to Bloomberg. Simply put, he realizes that advanced crypto and DeFi technologies remove the need for bankers and centralized banks.
Naturally, Cunliffe himself prefers framing the issue in a completely different way. He talks about people increasingly considering crypto assets an alternative to real investments, not just a gamble. Therefore, they must be restricted, if not completely prohibited. According to the Deputy Governor, the reason is “a likely scenario of a massive collapse in crypto asset prices”. And if it happens, it will reveal how much assets like bitcoin are (not) connected to the rest of the economy.
So, is anybody going to tell him about the winter of 2017-2018 and the fact that the crypto market has already gone through a crash? Clearly, it did not stop the development of blockchain technologies.
Still, the trend observed here is alarming. We have already seen the de facto ban on cryptocurrencies in China, numerous problems and obstacles in the United States, and now England, the “financial capital of the world”, is trying to limit its circulation by introducing stringent control and regulation to this fast-growing market.
On the other hand, seeing how bankers are afraid of cryptocurrencies and DeFi shows that they really are the future.