Cryptocurrencies have been vulnerable to numerous schemes. The volatility of the crypto verse demands more stringent regulation and the emergence of state-backed digital currencies, but as it comes in, it can cause cryptocurrencies to crash. So much so that the non-state-backed cryptocurrencies are expected to dip magnificently in value.
The world is now seeing dedicated regulatory regimes being developed for cryptocurrencies.
- The European Commission has proposed a regulatory regime for crypto assets.
- The US Senate is looking at reporting the details of transactions by crypto exchanges by 2023.
- UK’s Financial Conduct Authority (FCA) was appointed as the cryptocurrency market regulator in January 2021.
Do state-backed digital currencies pose a long-term threat to cryptocurrencies?
With China conducting trials of its digital Yuan and the EU looking at a possible digital euro, the private cryptocurrencies can be in potential danger.
The Federal Reserve chair referred to its digital dollar project as a high priority.
These movements affect the security of blockchain and also its stability.
The entire cryptocurrency market’s annual worth is around USD 1.5 trillion, and the lack of regulation leaves loops for criminal activity to sneak in. New crypto assets and cryptocurrency exchanges launch every day, making global leaders determined to regulate it.
Ransomware attacks are primarily linked to Russia and are now a geopolitical issue. The country has been accused of involvement in attacks like the 2020 SolarWinds attack.
A final communique was issued in the 2021 G7 meeting; promising G7 nations would collaborate to address the increasing threat of ransomware attacks. However, the anonymity factor of cryptocurrencies allows ransomware attacks to play out further, urging states to take stringent actions.
Cryptocurrency frauds like the PlusToken Ponzi scheme have cost billions. The scam tricked investors out of approximately $2.9 billion. Moreover, money laundering cases have surged with cryptocurrency allowing it on a global scale.
Cryptocurrencies are being used for white-collar crimes, making serious regulatory regimes necessary. The UK alone loses £113 million to crypto scams in 2020.
It does not just end at money laundering but moves beyond and towards the crypto-asset markets themselves. White-collar crimes involve manipulated representations of the value, stability, and viability of crypto assets and other financial instruments.
People get attracted to crypto investments or their derivatives due to the pretty numbers displayed despite the warnings issued by FCA and other regulators. FCA states, “Crypto Assets pose a high risk and are speculative purchases. Therefore, if you are buying crypto-assets, be prepared to lose all of it.”
However, this does not affect the appetite for cryptocurrencies; the extraordinary volatility continues to lure in new investors.Ether dipped 22% in 24 hours and Bitcoin 40% in a week earlier in the year. The FCA banned the selling of crypto derivatives to consumers, arguing that the underlying crypto assets pose volatility, but UK consumers are still able to buy them internationally online.
The UK has not dedicated any regulatory regime for cryptocurrencies as of now. The FCA, however, has been actively regulating the crypto market. It has made registering to operate in the UK Crypto Asset platforms mandatory.
The platforms that registered in December 2020 were able to run in the UK under a Temporary Registrations Regime as the FCA assessed their application. Many applicants failed to complete their registration as they couldn’t meet the anti-money laundering requirements. The FCA also banned Binance, a crypto exchange, from conducting trading in the UK. 111 unregistered cryptocurrency providers were operating in Britain, according to Mark Steward, the FCA’s head of enforcement and market oversight. They also warned the banks, payment services firms, and other white-collar service providers involved.
The British legal system has been quite adaptable with the surge of cryptocurrencies. In 2019, the English High Court looked at the possibility of crypto-assets being legally regarded as property. Followed by a case, the crypto assets were concluded to have the legal characteristics to that of property, and their nascent technological features do not prevent them from being legally pronounced as property. The judgment has brought crypto within the purview of the English courts.
The regulators and the courts are tackling cryptocurrencies and white-collar crime with the help of existing laws. Furthermore, the manipulative use of crypto assets is set to be attacked by state-backed digital currencies and regulations posing a threat to cryptocurrencies.
People may move to a digital dollar from a meme coin, but it remains to be seen.