Overview
Following a recent rise, the price of Bitcoin once again exceeds $10,000, a key resistance level which, if sustained, could see it rising even further. Interest in cryptocurrencies is, according to some observers, likely to rise as measures taken by Central Banks to combat the effects of the coronavirus pandemic result in the devaluing of their own fiat currencies, and while Central Banks themselves experiment with digital currencies. The Libra Association continues to work on Libra, a token designed to be used on Facebook. Rumors swirl of imminent support by the global payments giant PayPal for cryptocurrencies, supported by recent job listings for cryptocurrency engineers. Whilst it might not yet have returned to the levels of mania seen during 2017-2018, cryptocurrency appears likely to continue to grow in both maturity and usage. Such a rise will inevitably be marked with a corresponding increase in the debate over the extent of regulation needed in the area. Should it be a case of caveat emptor or should government regulators take greater steps to introduce guard rails in this area?
UK Perspective
In October 2018, the UK Government Cryptoassets Taskforce – comprising HM Treasury (HMT), the UK Financial Conduct Authority (UK FCA) and the Bank of England - published its final report (Taskforce Report) on the UK’s policy and regulatory approach to cryptoassets and distributed ledger technology (i.e., independent computers used to record, share and synchronize transactions in their respective electronic ledgers; blockchain being one example of such technology) in financial services. The Taskforce Report identified three broad types of cryptoasset:
- Exchange tokens – often referred to as cryptocurrencies, these tokens use a distributed ledger technology platform and are not issued or backed by a Central Bank or other central body;
- Security tokens – these amount to a “specified investment” under the Financial Services and Markets Act (2000) (Regulated Activities) Order (RAO) and may provide tangible rights such as future entitlement to shares or payment of a sum of money; and
- Utility tokens – these can be redeemed for access to a specific product or service that is typically provided using a distributed ledger technology platform.