Hello. Welcome to the latest edition of the FT Crypto Finance Newsletter. This week we look at the UK’s big efforts to regulate stablecoins.
Part of the regulator’s job is to look around the market and consider what powers would be needed if something big happened in the future, such as the failure of a major bank or asset manager.
This “horizon scanning” is often applied to financial innovations, where authorities anticipate the need for oversight and rules as innovations become widely used.
While a worthwhile endeavor, it can quickly drain regulators’ resources and undermine their enthusiasm if the focus does not become mainstream. I should know. For an early, boring and thankfully short period of my working life, this was my job.
This memory was brought home this week when the UK set out guidelines to regulate stablecoins, digital tokens pegged to sovereign money.
These are similar to international currencies like the dollar or Spain’s old eight. It is a form of money that can be used for transactions in the borderless world of cryptocurrencies, but without the hassle of leaving a digital trail in a traceable bank account.
The Bank of England and the Financial Conduct Authority on Monday published proposals to introduce stablecoins into the economy as viable means of payment for everyday goods and services.
The FCA’s Sheldon Mills said stablecoins could make payments “faster and cheaper”, while the bank’s Sarah Breeden said stablecoins could “power up digital retail payments”. He said there is a possibility that
The powers of the two regulators differ slightly. The FCA proposes to consider regulating companies that issue stablecoins, while banks primarily propose to consider how to regulate payment system operators that use stablecoins. I am proposing.
My question was simply “Why?” I wasn’t alone in this. “To my knowledge, these proposals are not the result of retail consumer demand,” said Harvey Knight, head of Wizards’ UK financial services regulation group.
People familiar with the matter said existing stablecoins would not even fall under the Bank’s system today because they are primarily used for cryptocurrency payments rather than everyday retail consumer spending. .
It’s also hard to imagine what problems stablecoins might solve for UK consumers. Many British consumers are accustomed to instant digital payments using contactless credit and debit cards.
“We need a stablecoin because the UK already has an efficient payments infrastructure in place to process domestic retail payments. . . It’s not convincing,” said Arun Srivastava, partner at Paul Hastings. told me.
“Consumers are satisfied with the relative speed and remittance of traditional payment methods, as well as the complexity of cryptocurrencies, so it will not be until fiat-backed stablecoins become widespread as a means of payment for consumers. It may take some time,” added Hannah Ross, head of financial services regulation. Attorney at Pinsent Masons.
Looking at the broader picture, there are only five stablecoins with a token value of over $1 billion in circulation, and none of them call the UK home.
Tether, which controls $86 billion worth of eponymous tokens, dominates the market, followed by USDC, run by US Corporate Circle. However, the token has continued to blow away market share ever since Circle declared its $3.3 billion exposure to the failed Silicon Valley bank. The rest of the top five includes the Binance-branded stablecoin, which fell into insignificance after falling foul of New York regulators this year.
So what’s left? It is well known that foreign exchange payments and settlement systems are not everything.
“I highlight foreign exchange because it is the worst part of today’s established financial system,” said the 36-year-old, who spent 14 years at the central bank before becoming director of market infrastructure at Fireblocks, a blockchain platform. Varun Paul, who worked there, said.
“With the Starling stablecoin, you will be able to send money from the US to the UK, from the Philippines to the UK, or anywhere else using cheaper and faster blockchain rails.”
That’s true, but it’s unclear whether a British stablecoin (Britcoin?) will ever see the light of day.
Still, as Paul pointed out, it’s a chicken and egg question. Without legal guidelines, most people would not use it.
And as a practice, you never know. There may come a time when UK regulators wish they had had some powers of intervention, or had more foresight.
What do you think about the UK stablecoin proposal? As always, drop us an email at scott.chipolina@ft.com.
weekly highlights
Ghosts of the past: Lender Celsius Networks has won court approval for a restructuring plan that will bring it out of bankruptcy and return funds to customers who have been waiting since July last year. The new Celsius is run by a consortium that includes Arlington Capital and calls itself Fahrenheit. But of course.
On the other hand, there are rumors that the FTX exchange will also come back from the dead. The value of the FTT token at the center of FTX’s collapse doubled this week to $2.84, but it’s still a long way from the infamous $22 price that FTX’s old management was willing to pay.
The production company behind the Bored Ape Yacht Club series said ultraviolet radiation from a show it hosted in Hong Kong last week was likely responsible for the “eye burns” suffered by several participants. . “We encourage anyone who is experiencing symptoms to continue to seek medical attention,” the agency said Thursday.
When Rep. Zach Nunn (R-Iowa) and Rep. Abigail Spanberger (D-Va.) co-authored a bill that would prohibit U.S. government exposure to the “People’s Republic of Blockchain-based Services Network.” , the United States continued its relentless attack on cryptocurrencies. China”. The bill lists the name of Ifinex, the Hong Kong-based parent company behind Tether, the world’s largest stablecoin issuer.
Soundbite of the week: Former CFTC chief slams US crypto policy
Chris Giancarlo, former chairman of the Commodity Futures Trading Commission, the main U.S. derivatives regulator, spoke at the FT’s Global Boardroom event this week. Although he supported the potential of cryptocurrencies, he did not like the gridlock in Washington.
“If you look at what happened last week,[the UK]released a document aimed at making the UK the center of global cryptocurrency activity, and the EU is busy enforcing the Mica Act. Because our two biggest laws are in effect, our economic competitors are not following the current administration’s approach to suppressing cryptocurrencies. They are actually trying to take advantage of the suppression of cryptocurrencies here in the United States to further their own economic interests. ”
For comparison, the CFTC announced this week that 49% of its enforcement actions in the fiscal year that ended in September involved digital assets.
Data mining: Expectations rise for US Spot Ethereum ETF
Bitcoin prices rose again this week on hopes that US asset manager BlackRock will receive regulatory approval to launch a spot Bitcoin exchange-traded fund, a US stock market vehicle that invests directly in Bitcoin. It soared to nearly $38,000.
Late Thursday, BlackRock went a step further, filing to list a physical ETF that invests directly in Ethereum, the second largest cryptocurrency.
Ethereum is slightly different from Bitcoin in that it is more commonly used as a building block for other crypto projects.
As expected, Ethereum’s price skyrocketed on this news, increasing by 10 percent in the next few minutes. Pressure on the SEC against crypto ETFs is not likely to ease anytime soon.
FT Cryptofinance is edited by Philip Stafford. If you have any comments or feedback, please send them to cryptofinance@ft.com.
