Monday 9 December 2019 11:00 am

Too much regulation on bitcoin and cryptocurrency could scare away future tech innovators

Danny Masters is founder and chairman of digital asset manager CoinShares.

Back in October, the FCA closed its consultation on banning the sale of cryptocurrency derivatives to retail investors. A consultation that I hope will start a collaborative discussion, bringing crypto and its regulatory framework up to speed with the rapid growth of the industry. Thankfully, the FCA’s approach so far has been inclusive and forward-thinking.

Crypto is a new market, and yes, it’s little understood — but it has huge potential, and we should continue to appropriately protect investors who want regulated access to this opportunity, starting with the 27,000 such folk that our firm welcomes as customers. 

And people care about crypto. The FCA’s consultation attracted a huge amount of interest, and will likely be one of the most responded to in recent years — many responses will be in favour of crypto assets.

The FCA does reflect some of the concerns held by the general public, arguing that crypto assets “have no inherent value”. But it’s worth noting that many of these concerns parallel those in the early days of the internet. 

When the internet was born, stories of hackers, scammers, and viruses immediately captured people’s imaginations. Yet investors in the technology persevered, and now it is at the core of almost every facet of modern life.

We are at a crossroads. When Britain leaves the EU, we have an opportunity to set a new precedent for emerging industries. If we can maintain this collaborative approach and create a balanced, considered legislative agenda, the effects will stretch further than just for crypto assets.

The UK can strengthen its position as the financial capital of Europe and become an incubator for the next generation of tech firms. But over-exacting regulations on innovative products could close the door to innovation and ultimately damage our position as a hub of innovation.

In the USA, Switzerland, Scandinavia, and Hong Kong, crypto derivatives and similar products are being welcomed by legislators and business. It’s always been fashionable to bash crypto — sometimes for good reason, so we will have to be forward thinking to maintain a competitive edge.

I can sympathise with regulators’ concerns. Stories abound of people losing money on crypto scams or forgetting passwords for their bitcoin wallet. But coming for the regulated players, who play by the rules and disclose all the risks, would be misguided. Investors would end up buying into riskier products and venues. 

Also, introducing too stringent regulations on the crypto industry could send a bad message to entrepreneurs who are considering coming to the UK. They are not short of other options.

I believe that crypto assets will be a trailblazer for the next wave of technological advances. Therefore, a delicate balance must be struck when it comes to regulating these emerging products. Collaboration with the industry could look like lobbying and generate biased outcomes, but overregulation would harm investors and hinder innovation.

This is the balance that the FCA must strike, and responsible players in the crypto industry have demonstrated commitment to helping regulators develop a productive, balanced approach. 

If the UK is to stay competitive after Brexit, we will need an open-door mentality. Fair regulation with protection for customers is key, but nothing is achieved with blanket bans. 

We can grasp this opportunity and launch the UK as the leading hub for crypto and the technologies which will follow it in the years to come. Failure to do so would set us on a path towards stagnation, watching other jurisdictions overtake our hard-won status.

Main image credit: Getty

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.