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Tsunami of regulation now heading towards cryptocurrency markets


It now looks as if regulators around the world are queuing up to bring in restrictions on the promotion of cryptocurrency, with more retail money flowing into the currently unregulated markets. This is shaping up to be a theme for the first half of this year.

The UK’s Advertising Standards Authority has been valiantly trying to bat against the pace bowler onslaught of complaints about misleading crypto promotions but it’s clearly been needing another team mate given the scale of the problem. Bringing the Financial Conduct Authority onto the pitch, with crypto ads brought under existing rules governing financial promotions, it will beef up the defence of consumers against a barrage of crypto ads promising fast and easy returns.

“It will come as relief for the ASA which could only censure firms after the ads had been posted and may have already ensnared vulnerable investors,” noted Susannah Streeter, Senior Investment Analyst at Hargreaves Lansdown. “It’s not just obscure crypto trading exchanges which have seen ads banned, even Arsenal Football Club has been censured for promoting risky assets like tokens to fans without enough warnings attached. With the FOMO effect so strong, far too many financially vulnerable consumers have been at risk getting their fingers seriously burnt, given the high volatility of the coins and tokens.”

Once this new legislation is passed in the UK, firms promoting crypto products will have a much higher bar to jump to show that ads are fair, clear and not misleading and companies could face hefty fines for serious breaches.

Over 2m people in UK own crypto assets

Already it’s estimated that 2.3 million people in the UK owned some form of crypto asset in 2021 and there is clearly growing concern at the heart of government and regulatory bodies about the increased speculation surrounding crypto currencies.

This proposed change in legislation comes after repeated warnings from the Financial Conduct Authority that consumers could lose all their money if they succumb to the promises of fast and high returns. News of the rule changes comes at a timely moment, given that the value of Bitcoin has dropped by 38% since its all-time high of over $68,000 in November, slipping back around 1% to $41,850, on Tuesday.

The rollercoaster ride is set to continue given that crypto assets are also highly sensitive to the fortunes of the stock market and were propelled higher in an era of ultra cheap money. As speculation swirls about how rapidly central banks will tighten mass bond buying programmes and start raising interest rates, given soaring inflation, they are likely to stay volatile.

It’s not just the UK regulator that is moving

Singapore has restricted crypto ads as the Monetary Authority of Singapore (MAS), the country’s central bank, claims that crypto trading is not suitable for the public. In Singapore, around 170 companies have applied for licenses to provide crypto services, yet more than 100 of them have either withdrawn their application or been turned down.

In addition, India’s prime minister has been calling for governments worldwide to collaborate on crypto – similarly to U.S. President Joe Biden’s urge in November for countries to collaborate on Bitcoin and cryptocurrency in general, to ensure that they do not fall into the wrong hands. However, the Reserve Bank of India (RBI), has called on the Indian government to completely ban cryptocurrency. We will see in due course what action Indian Prime Minister Modi will take on the regulatory framework for crypto that has been worked on for quite some time.

Furthermore, the State Bank of Pakistan have recommended that cryptocurrencies be declared illegal and banned completely. A day later, a major bank in Pakistan has asked customers to avoid participating in crypto transactions through SMS alerts. It was reported last week that multiple banks have blocked their customers’ credit card transactions when they have been suspected of involving cryptocurrency.

“I think these actions from Pakistan, Singapore and India will only shift economic value to other countries who are more accepting of this revolution, like El Salvador,” said Marcus Sotiriou, an analyst with UK digital broker GlobalBlock.

Criminal transactions forecast to fall

Despite these strict regulations, business advisory firm Gartner expects criminal crypto transactions to fall by 30% by 2024. This is due to the blockchain’s transparency as well as fraud prevention tools which are currently being used only by blockchain intelligence firms. The lack of criminal activity in the crypto market shows that some of these proposed regulations are irrational.

The rise in scrutinisation of crypto usage by global regulators worldwide may have contributed to a spike in value for privacy coins, which have rallied considerably recently – tokens SCRT and DUSK both rallied by around 50% over the past week.

“I think privacy-related cryptocurrencies will be a trend in the coming years and will outperform the market at some point, as they could be a way to bypass strict regulations, due to the flow of money across their networks being obscured,” noted Sotiriou at GlobalBlock.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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