The UK's Financial Conduct Authority (FCA) is tightening the reins on crypto, specifically targeting retail investors who borrow to buy. In theory, that doesn’t necessarily seem like a shady policy – after all, it’s just responsible parenting, right? Is it really that simple? Are we protecting people or patronizing them? Worse still, are we unwittingly gutting the next generation of British ingenuity in the process?
Protection Or Stifling Progress
The FCA’s move stems from a genuine concern: people are increasingly using credit to buy crypto, and that's a recipe for disaster. In fact, a recent survey found that the percentage of crypto investors who are borrowing has grown from 6% in 2022 to 14% today. That's alarming. Picture using your credit card to purchase lottery tickets – it’s the same degree of fiscal irresponsibility.
We now live in a world where he can leverage himself 50 times over to buy one house. This monetary investment though is usually orders of magnitude bigger and lasts longer than a small crypto investment. Where's the line? Is it really the role of government to protect us from every conceivable foolish choice? Should we start being responsible for our own decisions? We can do this at all levels, even when the decisions are high stakes, with the right education and awareness.
It makes me think of the early, wild days of the internet. Experts had cautioned against the hasty shift to online shopping, citing increased risk for fraud, scams, and compromising personal information. Did we ban online shopping? No. We created new tools and regulations to address the threat, and the internet blossomed. Is crypto the next internet, and are we about to put the kibosh on it before it even gets going?
Unintended Consequences Abound
The road to hell is paved with good intentions, and this crypto ban could be a perfect case in point. By limiting access to regulated platforms, aren’t we pushing retail investors into the underbelly? Unregulated exchanges and peer-to-peer lending platforms are poised to benefit from a wave of new engagement. These platforms are lacking robust consumer protections and transparency compared to their regulated counterparts. In turn, investment risk is highly likely to be exacerbated for investors.
Think about it. Opportunists looking to purchase crypto with someone else’s money will always find a workaround. A ban only moves it outside the regulated sphere of finance, forcing people to operate in a wild west of unregulated finance. It’s the same as banning alcohol – you don’t remove the demand, you just create a black market.
This ban would be especially painful for younger investors. They generally tend to be more curious about crypto and they tend to lack the capital necessary to make a meaningful investment without assuming leverage. These are the very people who could benefit most from early exposure to new technologies and investment opportunities. Are we unintentionally designing a future where only the rich get to play in the financial sandbox?
A Singaporean Solution?
Liang Hua, a top academic authority, tells us that we should turn to Singapore for a possible answer. Singapore’s increasingly savvy approach to crypto regulation is taking a new, nuanced approach to crypto regulation. Each requires more comprehensive investor education and risk disclosure rather than outright bans. To foster innovation, they’ve created a regulatory sandbox where innovative, compliant crypto businesses can test and develop new products and services under the watchful eye of regulators.
We believe this approach enables innovation to continue to flourish while ensuring consumers remain protected. That’s a tough-tightrope walk, but it appears to be a successful one. As a result, Singapore has emerged as a global center for crypto innovation, luring talent and investment from across the globe. Well, as it turns out, Britain could learn a thing or two from the Lion City.
The stablecoin exception further complicates the issue. Permitting borrowing with respect to stablecoins issued by FCA-regulated firms opens a large loophole and is rife with fairness considerations. Have we established a two-tiered, separate and unequal, system? That they would still be used in a way that makes some crypto assets seem much safer than their underlying risks would imply.
All said and done, the UK’s crypto ban appears more like an impulse decision moved by fear as opposed to a cohesive plan. Consumer protection is of course the highest priority, but the stakes are too high to crush innovation in an industry that promises so much. We require an approach that will promote this responsible growth and help support innovation, while empowering consumers with the tools they need to make informed choices. If we’re not being bold, we’re going to get left in the dust. Instead we’ll find ourselves a financial backwater while our global competitors reap the rewards of the crypto revolution. Let’s not murder the future out of an illusory and short term convenience.
