The deputy governor of the Bank of England has warned that cryptocurrency trading is “too dangerous” to remain outside mainstream financial regulation and could cause “systemic problems” if no action is taken.
First speech since founder of crypto trading platform Soar Sir Jon Cunliffe told Sky News he was arrested and charged with massive fraud bank Regulation is being considered to protect retail investors in crypto trading “casinos,” and the wider financial system, from potential crypto shocks.
Sam Bankman-Fred wash extradited on wednesday From the Bahamas to the United States, he will appear in a New York court charged with eight counts of fraud, money laundering and destruction of campaign financing.
The collapse of FTX left more than 1 million customers unable to withdraw assets worth approximately $8 billion.
Prosecutors accused him of using FTX client funds to cover losses at his private crypto hedge fund, Alameda Capital, which the firm’s new CEO told Congress was “old-fashioned embezzlement.”
According to a lawyer representing dozens of victims, an estimated 80,000 of FTX’s clients are based in the UK and are personally indebted up to £5 million of their life savings.
Cryptocurrency fraud expert Louise Abbott told Sky News: “These individual investors invested anything from a few thousand pounds to about £5 million, such a large amount of money, all completely frozen, and I would use the word frozen instead of lost, Because hopefully at some point something will be given to them. But it’s huge amounts of money, huge amounts of money lost or stranded, or frozen in time.”
The incident dealt a huge blow to the credibility of cryptocurrencies, digital assets whose value derives not from state backing but from relative scarcity and the willingness of other investors to trade them.
Mr. Bankman-Fried built connections in Washington and Wall Street, garnered millions in political donations and attracted high-profile investors to his platform.
His downfall highlights the volatility of crypto investing and the lack of regulation in an industry that, despite widespread skepticism, is attracting increasing attention from the financial mainstream.
In the U.K., regulators tried unsuccessfully to impose a warrant on offshore cryptocurrency exchanges, while the government has a target, which was announced in April by Rich Sunak During his tenure as chancellor, the ambition to make the UK a “global hub for crypto-assets” hinges heavily on effective regulation.
Sir Jon, deputy governor for financial stability, told Sky News the bank’s supervisory work was aimed at protecting individuals and maintaining financial stability.
“Over the past 10 years, there’s been a lot of activity around trading and selling crypto assets that don’t have any intrinsic value, so they’re very volatile. All of that has grown outside of regulation,” he said.
“What we’re seeing in FTX…is some activity that is supposed to be somewhat protected in the regulated financial sector. We’re seeing clients’ money appear to have been lost, conflicts of interest between different businesses, transparency , auditing and accounting. All the potentially boring stuff that happens in the normal financial sector, doesn’t really happen in that set of activities. As a result, I think a lot of people lost a lot of money.
Likening cryptocurrency trading to a casino, Sir Jon said investors who want to speculate should be able to do so without the risk of losing access to their funds.
“It’s actually a gamble in my opinion, but we allow people to bet, so if you want to get involved, you should have the ability to be in a place that’s regulated in the same way that gambling is, it’s regulated …you should get all the information on the jar about what you’re doing.”
As institutional investors and the bank explore an estimated $1 trillion worth of crypto assets, the bank must also address the risks digital assets may pose to financial stability.
Sir Jon said: “This crypto-asset trading is not enough to destabilize the financial system, but it is starting to connect with the financial system.” “I don’t know how this will develop. But we have banks, investment funds and others who want to People who invest in it. I think we should think about regulatory issues before it integrates with the financial system and before we can have a potential systemic.
“So I don’t think it’s fair to say that this can be kept out of the financial system. It’s too dangerous. I think it’s hard but it’s fair to say, let’s bring it in, we think we can bring it in when and where we want. customary standards to manage risk.”
While cryptocurrencies have been volatile since bitcoin’s inception 14 years ago, its underlying technology, blockchain, is seen as having great potential for managing data across industries and speeding up and simplifying transactions.
Blockchain provides proof of transactions on a public record called a distributed digital ledger.
Every new cryptocurrency exchange is recorded on a “block” which is added to a “chain” containing details of the new transaction and previous transactions, meaning it can only be changed by changing all previous links counterfeit.
The system is maintained and supervised by each computer connected to the network rather than a central monitoring entity.
Meanwhile, Mercedes is exploring the potential of blockchain to manage data for autonomous driving Vodafone Its utility in managing the billions of microtransactions that will be facilitated by next-generation Internet technologies is being explored.
“Smart money” could also simplify global supply chains, with the prospect of using stable coins for microtransactions linked to various parts of the production process.
Sir Jon said: “The technology here can, and I stress can, really work in the normal financial system to do things in a more efficient way, possibly a more resilient way of doing things.”
“This has not been proven in the crypto world. But if we can provide a regulatory space where people can see if they can use it to build products, we may be able to benefit from some of these technologies.”
Bank of England’s own digital coin
As part of this process, the Bank of England is consulting on plans to develop its own central bank digital coin, an electronic version of the pound sterling with the same security as sterling coins but with the digital flexibility that could one day replace cash sex.
“Banks have been providing physical cash for as long as people have needed it, and a lot of people have relied on it. But it’s not quite available in the way we live now. So the problem with the Bank of England is that as we live our lives as society As our lives become more digital, should we continue to offer the public a currency that can be used for a range of transactions?
“It would be the digital equivalent of the ‘I promise to pay a bearer sum’ promise, which would ultimately bolster confidence in the UK currency. You could essentially turn the money you hold in the bank into a Bank of England for as long as you wanted to. Money that the state backs and promises to pay to bearers.
“We want to make sure that as physical cash becomes less available in many parts of the economy, maybe we need to provide something digital to provide that support.”