First of all, it is worth considering the theoretical roots of cryptocurrency. The idea behind Bitcoin dates back to Friedrich von Hayek’s denationalization of money. In this book, Hayek argues for a completely free market in the production, distribution and management of money, ending the monopoly of central banks.
While this is the belief that many Bitcoin proponents cling to, it is unlikely to happen: control of money is control, period. Perhaps equally relevant is the fact that Bitcoin was born out of the 2008 financial crisis, in which many people saw their wealth wiped out in previously “safe” institutions.
From that point on, not much has happened from a regulatory perspective: as recently as 2016, there was virtually no regulation in the cryptocurrency world. After all, the purpose of cryptocurrency was to directly transact between individuals without anyone knowing where the money came from. Bitcoin, in particular, was excoriated in its early days for being used by criminals to evade taxes and launder money.
However, this fundamentally ignores blockchain, the technology behind many cryptocurrencies. Perhaps Coinbase’s Brian Armstrong explained it best in his Twitter feed on the role of crypto during the Russian invasion of Ukraine: or other assets.
Every major crypto exchange these days has to be “know your customer” (KYC) and anti-money laundering verified and as of last year all cryptocurrency companies in the UK have to be registered with the Financial Conduct Authority (FCA). Generally speaking, this means that these platforms are as regulated as traditional banks and stock exchanges.
Demonstrating this fact, later in 2021 the FCA demanded that Binance – the largest exchange in the world – cease all regulated activities, including trading in “tokenized” shares in publicly traded companies. This was thought to be the first indication of what would come in the form of crypto regulation in the UK.
While some countries are still unsure how they should react — more than 40 countries have fully or partially banned cryptocurrency — the sensible solution is to make it legal in every jurisdiction and then tax it. The UK has taken the pragmatic approach of treating crypto like any other profit-making or loss-making asset: make a profit and you will be subject to capital gains.
In the fiduciary world, regulation tends to happen when unscrupulous people discover a loophole. Crypto goes through the same process as fiat currencies over centuries in a very short period of time. Nevertheless, the fact remains that crypto must be regulated, and in the same way as national currencies.
Temple Melville, CEO of The Scotcoin Project Community Investment Company (CIC)