First, it is worth looking at the theoretical roots of cryptocurrency. The idea behind Bitcoin can be traced back to Friedrich von Hayek’s Denationalisation of Money. In this book, Hayek argues for a completely free market in the production, distribution, and management of money, bringing an end to the monopoly of central banks.
While this is the belief that many of Bitcoin’s proponents hold onto, it is unlikely to ever happen: the control of money is control, full stop. Perhaps of as much relevance is the fact that Bitcoin was born out of the 2008 financial crisis, during which many people saw their wealth wiped out within previously ‘safe’ institutions.
From that point, little happened from a regulatory perspective: as recently as 2016, there was essentially no regulation in the world of cryptocurrency. After all, the point 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 misunderstands the blockchain, the technology behind many cryptocurrencies. Coinbase’s Brian Armstrong perhaps put it best in his twitter thread about crypto’s role during Russia’s invasion of Ukraine: “Because it is an open ledger, trying to sneak lots of money through crypto would be more traceable than using US dollars cash, art, gold, or other assets.”
These days, every major crypto exchange has to be to be ‘know your customer’ (KYC) and anti-money laundering checked and, as of last year, all cryptocurrency firms in the UK must be registered with the Financial Conduct Authority (FCA). Broadly speaking, this means that these platforms are as regulated as traditional banks and stock exchanges.
Demonstrating that fact, later in 2021 the FCA demanded that Binance – the world’s largest exchange – cease all regulated activities, including the trading of ‘tokenised’ stocks in publicly listed companies. This was believed to be the first indication of what will come in the form of crypto regulation in the UK.
While some countries remain unsure about how they should react – more than 40 nations have either completely or partially banned cryptocurrency – the sensible course is to make it legal within each jurisdiction, and then tax it. The UK has taken the pragmatic approach of treating crypto like any other asset incurring profit or loss: make a profit and you will be subject to capital gains.
In the fiat world, regulation tends to arrive when unscrupulous people discover a loophole. Crypto is going through the same process that fiat currencies did over centuries in a very short timeframe. Nevertheless, the point remains that crypto should be regulated, and in the same way as national currencies.
Temple Melville, CEO of The Scotcoin Project Community Investment Company (CIC)
