A Monday morning article that appeared in The Daily Telegraph, a British newspaper, sent cyrptocurrency markets into a tailspin. Over a three hour time period, the market capitalization of the industry suffered a 2.8% pullback, roughly $6 billion in total dollar terms. While the values for Bitcoin and Ethereum experienced lesser percentage amounts, the two kingpins, nonetheless, still felt the squeeze. Litecoin was down 5.5%, and lesser known rivals like Stellar Lumens and EOSIO, depreciated 4.3 and 4.5%, respectively.
October has been a bad month for equities and bonds across the globe, but cryptos seem to have weathered the storm up until now. Many analysts were attributing this newfound stability to investors suddenly realizing that Bitcoins and a few altcoins were actually becoming safer stores of value, something along the lines of U.S. Treasuries and precious metals. Bitcoin does have a reputation for being a “safe haven” within the cryptocurrency market, but this reaction from general investors would be encouraging.
What then caused the stir? According to the reporter with The Daily Telegraph: “UK politicians are putting pressure on the Financial Conduct Authority (FCA) to crack down on the country’s cryptocurrency sector. The article said MPs were planning to expand the regulator’s remit to cover all virtual currencies, no matter their function.” The reporter also added that, “The FCA, Bank of England and HM Revenue and Customs are currently working on a joint proposal for new cryptocurrency regulation.”
The reporter also sought the opinion of and outsider to bring clarity to this unforeseen action. Patrick Curry, CEO of the British Business Federation Authority, put forward the argument that “no regulation is better than bad regulation.” He also co-authored a statement that, “The move could stifle growth in UK’s burgeoning fintech sector. It [the proposal] is a very blunt instrument approach, and I haven’t seen this in other countries. My concern is the law of unintended consequences.” Quick actions such as these tend to force intellectual capital to leave a country for more accommodating climes, taking thousands of jobs along with it. There have been countless examples of this quick migration response in recent years. Asian financial centers have been the beneficiaries, more times than not.
London is also regarded as the central hub and undisputed capitol of foreign exchange. For its politicians to suddenly block innovation in one of currency’s many forms, crypto being virtual and the wave of the future, seems counter-intuitive, counterproductive, and arbitrary at best. If the same event had happened in Cyprus or Malta, we doubt if we would have witnessed the same “negative knee-jerk reaction to the news.” Hopefully, saner minds may well prevail, as the FCA, Bank of England and HM Revenue and Customs go about their task of updating regulations to bring more clarity to the world of virtual currencies.