Cash News
Clearly not. Bitcoin has surged to a new record high above $90,000 since Trump’s election and, in an amazing change of heart, the Trump family benefits from its own cryptocurrency enterprise, called World Liberty Financial.
It is a decentralised finance platform that the president-elect promoted heavily during his campaign. “What we want to do is take on a lot of the banking world,” his son, Donald Trump Jr, boasted in August.
Trump is seen as the cryptocurrency president, with expectations that he will do wonders for the industry by forcing regulators to support rather than prosecute cryptocurrency companies.
All this puts our own financial regulators in a difficult spot. In theory, cryptographically secured software systems should be able to perform some of the work of bloated financial institutions more efficiently and cheaply. Participants in decentralised finance claim it does just that, for a fraction of the fees. If there’s any genuine value here, the City doesn’t want to miss the boat.
There is clearly money to be made. Last week, BlackRock’s regulated Bitcoin ETF fund surpassed the value of its gold-backed fund. “It provides an easy way for investors to get exposure to price movements without holding the asset itself,” says Freddie New, the co-founder of research operation ICDEF.
No wonder the City doesn’t want to miss out.
At the same time, retail cryptocurrency is wilder than ever. Protocols and chains are subject to relentless attack, often from North Korea. Scams and frauds proliferate. “Complexity hides fraud”, an observation that dates back to the South Sea bubble, has never been more prescient.
After Bankman-Fried was arrested, we learnt how much of the new world was illusory. Castles had been built on sand and imaginary floating cities pictured on top of those. Once interest rates began to rise, the illusions disappeared in a puff of hot air. In the process, many investors lost money.
City regulators have a dilemma: how to approach an industry that contains both innovation and wild speculation?
One area looks the most empirically solid: stablecoins, tokens which cannot be artificially devalued and are pegged to something tangible, such as a pound or a euro.
At the other end of the spectrum are the spurious meme coins with no existence other than on a spreadsheet, where a keystroke wipes out everyone’s fortune. This is how Bankman-Fried’s FTX fraud was made possible. Another problem is insecure protocols and platforms which are overwhelmed by attackers.
The Bank of England wants to see regulated stablecoins used for payments, while the Financial Conduct Authority says it’s “planning to publish a roadmap for our regulation of cryptoassets shortly, to provide clarity on our work in this area”.
In the meantime, we are in a muddle. Today, cryptocurrency enthusiasts can buy sketchy coins from their sofas via a peer-to-peer exchange, but a regulated UK equivalent to BlackRock’s ETF cannot even advertise.