Last week the British government Published its consultation paper for Cryptocurrency regulations now Considering that the UK is apparently Looking to become a crypto Hub the Details of these regulations could be a Big deal for the crypto industry that's Why today I'm going to summarize the UK's consultation paper tell you what it Says in simple terms and explain exactly What it could mean for the crypto Market I'll start by repeating that the UK's Crypto regulations are in their Consultation phase if the recent crypto Regulations in the EU are anything to go By they will look different once they Become law in the UK The consultation period for the UK's Crypto regulations closes at the end of April so we will know after that Now the consultation paper is titled Quote future Financial Services Regulatory regime for crypto assets and I'll leave a link to the full document In the description now the paper begins With the authors reiterating that the UK Is looking to become a crypto Hub However they cautioned that the rewards Of crypto come with risks such as the Collapse of FTX naturally they say that Clear and transparent regulations will Mitigate these risks while maximizing The rewards so the first part of the Paper covers existing regulations
Related to cryptocurrency The authors point out that most Activities related to cryptocurrencies Are not included in existing Financial Regulations in the UK they argue that Crypto activities should be subject to Similar regulations the authors then Reveal that unelected and unaccountable International organizations are actively Working to set Global standards for Cryptocurrency regulations these include The financial stability board or FSB the Bank for international settlements or Bis and the financial action task force Or fat f Now if you've watched our recent summary Of the world economic forum's Davos Conference you'll know the FSB is Planning on revealing its crypto Regulation recommendations sometime this Summer if the regulations proposed by The bis and the fat f are anything to go By they will be bad but we'll just have To wait and see anyways the authors go On to stress that this consultation is Purely about cryptocurrency not about Distributed Ledger technologies that the UK government is considering for things Like the digital pound Regarding crypto adoption in the UK the Authors specified that five to ten Percent of Brits hold cryptocurrency Well I'll raise a cup of tea to that Predictably the authors spend lots of
Time talking about how the crypto Market Crashed because of terror's death spiral The implosion of crypto platforms like Celsius and the collapse of FTX they Caution that allowing the crypto Market To grow unchecked could lead to Financial stability issues The authors then list the four policy Objectives of the UK's crypto Regulations these are to encourage Crypto Innovation educate consumers About the risk protect the financial Stability of the UK and protect the Market Integrity of the UK notice how Encouraging crypto Innovation sits at Number one the authors also list three Design principles for the UK's crypto Regulations these are the same risk same Regulation principle that's been Discussed at length by the world Economic forum and others Proportionality meaning that the Regulations are tailored for each crypto Activity and flexible which is well Self-explanatory The authors then reveal that there is a Second batch of crypto regulations Coming up with the quote financial Services and markets bill now this Second batch of crypto regulations Focuses on stable coins and should Become law later this year just in time For circles upcoming GBP stablecoin the Authors were also kind enough to provide
A detailed roadmap of all the different Kinds of crypto regulations that are in The works in the UK the regulations this Consultation paper pertains to will Likely become law later this year or Early next year though an exact timeline Isn't provided The second part of the paper deals with The definition of cryptocurrency the Authors concede that there is no Universal definition of cryptocurrency But the one they provide is pretty good Quote Crypto asset means any cryptographically Secured digital representation of value Or contractual rights that a can be Transferred stored or traded Electronically and B that uses Technology supporting the recording or Storage of data which may include Distributed Ledger technology end quote Well sounds about right now as you might Have noticed the authors don't use the Term cryptocurrency this is because Digital currencies that are used for Payment settlements fall under a Different category according to UK Regulations hence the separate set of Regulations for centralized stable coins And other such cryptos Not surprisingly the authors confirm That nfts are somehow not a part of Their crypto regulations if you watched Our video about the fat F's crypto
Regulation recommendations you'll know They mysteriously limited nfts too it's Almost like the elites want to keep Doing Shady stuff with their art huh Conspiracy theories aside the authors Provide a nice little list of the most Common crypto categories what's odd is That they refer to bitcoin and ethereum As exchange tokens even though this is a More appropriate term for tokens that Are closely related to crypto exchanges Such as binances BNB what's interesting Is that the author's list of crypto Categories includes algorithmic tokens Governance tokens and even fan tokens to Their credit the authors asked the Reader whether this list of crypto Categories makes sense well I reckon I Just gave my input BTC and eth are not Exchange tokens Now this ties into the third part of the Paper which provides an in-depth Overview of how existing Financial Regulations apply to cryptocurrency one Of these is kyc and AML for crypto Exchanges and platforms something which Was only introduced by the UK government In January 2020. another crypto Regulation that the UK introduced was That all crypto companies must register With the financial conduct Authority Some of you may recall that these Regulations were introduced in March Last year and the ridiculous
Registration process resulted in many Crypto companies leaving the UK some of You may also recall the fca's aggressive Crypto advertising regulations in the UK The FCA recently warned that violators Could face up to two years in prison This sounds a bit excessive but you Wouldn't believe how many ship coins are Being advertised back in my home country Anywho the authors then provide this Useful infographic to help you Understand which current and future Crypto regulations apply to which coins And tokens in the UK As you can see stable coins are part of Phase one which is that aforementioned Financial services and markets Bill Expected in H1 this year funnily enough Though stablecoin trading is not Included in Phase One regulations it's Included in phase two which is this very Consultation paper It's also funny that the authors believe That payments made in any other Cryptocurrencies besides stable coins do Not require regulations I wonder why In any case the fourth part of the paper Pertains to so-called crypto asset Activities what's awesome is that the Authors admit that having one set of Regulations for all the things you can Do with crypto is ridiculous given all The different options instead these Regulations should be tailored based on
Risk The authors also admit that it's very Hard to say whether any given crypto Related activity is technically Occurring within Britain's borders as Such they propose that these crypto Regulations be applicable only to quote Crypto asset activities provided in or To the United Kingdom Even then the authors admit that Additional Nuance could be required in Some cases they go on to provide Examples of such nuanced cases such as UK citizens accessing otherwise Regulated crypto services in a less Regulated or unregulated manner from Outside the UK gosh I feel personally Attacked there Jokes Aside what you're looking at here Is a list of primary crypto activities That would require regulation in the UK The crypto activities that fall under Phase two are icos crypto trading Trading crypto for other assets crypto Lending and borrowing and crypto custody Services not bad at all what's even Better is that the authors explicitly State that decentralized stable coins Like die will not be subject to Stablecoin regulations rather they'll be Treated as other so-called unbacked Crypto assets like BTC and eth since They are backed by unbacked crypto Assets at least according to the authors
That said it's possible that die itself Could be affected given that a Significant amount of the dye in Circulation is backed by usdc which is a Stable coin requiring regulation as per The author's taxonomy I suspect that dye Would not be subject to stablecoin Regulations because usdc will be Regulated but it's not clear what is Clear is that the UK is not planning on Banning algorithmic stable coins like Terror's UST if you watched our video About Europe's upcoming crypto Regulations you'll know their final Draft included a de facto ban on Algorithmic stable coins it's possible That centralized stablecoin issuers Lobbied for this after all algorithmic Stable coins are the biggest threat to Centralized stable coins a robust Algorithmic stablecoin could very well Be the key to a truly decentralized Currency that would be used for everyday Payments this is a threat to stablecoin Issuers and the Legacy Finance essential Institutions that back them the authors Then explained to the reader that their Surprisingly soft policy on Decentralized stablecoins algorithmic Stable coins and nfts comes from the Fact that the proposed crypto Regulations only apply to crypto Activities not to the crypto coins and Tokens themselves those regulations will
Come later This relates to the fifth part of the Paper which is about regulations related To new cryptocurrencies if you're Wondering what the authors mean by new Cryptocurrencies they mean coins and Tokens that are listed on exchanges and Made available for trading not the Actual creation of coins and tokens the Authors provide a wish list of outcomes For regulations related to new Cryptocurrencies this includes making Sure that investors are given accurate Information about the project or Protocol that investors are compensated If they're misled and that fraudulent Crypto offerings should be banned to That end the authors want to require all Exchanges to perform extensive Background checks on any new cryptos They list and provide detailed Descriptions of these new cryptos to Exchange users what's bizarre is that The authors want exchanges to act as the Issuers of cryptos with no issuer such As BTC what's annoying is that the Authors don't seem to address Cryptocurrencies that are all already Listed on exchanges in the UK it's not Clear if they would be subject to the Same disclosure rules and if yes then Whether this would require UK exchanges To temporarily stop supporting these Cryptos until disclosure is presented
The authors also want all icos that Don't involve the sale of Securities to Be conducted through a regulated third Party now this is both reasonable and Practical as there are already lots of Reputable and regulated Ico platforms Out there coinless being one of many That comes to mind Now the sixth part of the paper is about The regulation of crypto exchanges the Author's wish list of outcomes for these Regulations includes more liquid and Resilient crypto exchanges more Transparent terms and conditions for Crypto exchanges and accurate on and Off-chain crypto data the authors then Provide a long list of everything crypto Exchanges would be required to do under These regulations it includes everything From detailed data reporting to Establishing a bankruptcy process that's Basically everything this part of the Paper says which makes sense given the FCA is already on it the seventh part of The paper is about the regulation of Other crypto intermediaries such as Market makers the wish list for these Regulations includes addressing Conflicts of interest sufficient Liquidity and the ability to detect Market manipulation I can't help but be Reminded of Alameda research regardless The long list of requirements for market Makers under these regulations is
Essentially the same as the one for Crypto exchanges I have a feeling that The list of requirements for both Categories is going to look a lot Different in the final draft because They seem way too reasonable to be real Anyway the eighth part of the paper is About the regulation of cryptocustodians And I think you can guess what it looks Like the authors discuss adjusting Existing laws to accommodate crypto Custody provide a wish list with Abnormally logical regulatory outcomes And suggest an equally logical list of Requirements now the ninth part of the Paper is where things start to get Exciting again that's because it's about Quote General market abuse requirements I think that probably could have been Worded a little better The authors take issue with the pump and Dumps and wash trading in cryptocurrency They also take issue with the fact that Many of these Market manipulation Techniques are unique to cryptocurrency And therefore not covered under existing Financial regulations in the UK they Even seem to take issue with the fact That the crypto Market sees more retail Trading than other markets given these Facts the authors believe that a Separate subset of regulations are Appropriate they hope these regulations Will among other things teach retail
Traders to spot crypto Market Manipulation and apply harsh punishments To those who try to manipulate crypto Markets the authors are unsure about Which UK regulator should be in charge Of regulating crypto Market manipulation But they are open to suggestions they Also underscore the fact that Global Crypto Market manipulation regulations Are required because overseas Market Manipulation can affect UK markets the Long list of diamonds highlights the Fact that the regulations would apply to Individuals as well as institutions this Begs the question of whether crypto Wales would get in trouble for Manipulating the market something tells Me that the answer is no as long as Their approved institutions more about The Wyckoff method using the link in the Description moving on Now the tenth part of the paper is about The regulation of crypto borrowing and Lending obviously the author spent quite A bit of time talking about crypto Platforms like Celsius and crypto Exchanges like FTX which we're using Customer funds and illiquid tokens as Collateral for loans because crypto Lending and borrowing does not fall Under any existing Financial regulations In the UK the authors propose Introducing a new regulated activity Called quote operating a crypto asset
Lending platform conditions would Include risk disclosures balance sheet Disclosures and clear user contracts now Whereas the first 10 parts of the paper Provide concrete regulatory Recommendations the 11th 12th and 13th Parts are a call for evidence of Different Topics in other words the Authors want more information about how Certain niches of crypto should be Regulated in the UK and the first Niche Is defy the authors acknowledge that D5 Protocols are next to impossible to Regulate due to their well Decentralization they also acknowledge That it's going to take time to figure Out how to regulate D5 even so they Believe that defy should be regulated in Line with all the other crypto Activities Besides D5 developers the authors seem To imply that those who hold significant Amounts of defy governance tokens could Eventually be subject to regulation in The UK this is because they're well Aware that the voting power in defy Dows Is concentrated in a handful of token Holders usually crypto VCS Centralized front ends for D5 protocols Could also face regulatory scrutiny Thankfully many D5 projects have already Begun decentralizing their front ends Now the authors also state that D5 Regulations will be difficult to
Implement until there's regulatory Clarity about the legal status of dows In the UK The second crypto Niche the authors want Feedback about is other crypto Activities this includes any activities In crypto that are analogous to stuff in The traditional Financial system it also Seems to include crypto mining staking Blockchain Forks crypto transaction Finality and even minor extractable Value and as you might have guessed the Third crypto Niche the authors want Feedback about is the Environmental Sustainability of crypto projects and Protocols they start with a dishonest Statistic and that's that Bitcoin mining Uses almost 40 percent as much energy as The UK does every year this is dishonest Because Bitcoin mining only uses around 0.05 percent of the total energy Consumed globally you'll know this if You watched our video about coin Shares's crypto mining report you'll Also know that Bitcoin mining only Accounts for 0.08 of global carbon Emissions now the authors go one step Further by citing the UK UK's ongoing Commitment to ESG or environmental Social and governance the investment Ideology that was created by the world Economic forum and is being championed By powerful entities in the private Sector such as BlackRock and Bank of
America the authors declare that ESG Criteria should be applied to Cryptocurrency because of that good old Same risk same regulation idea that the Weft also seems to have invented to add Insult to injury the authors tell Stakeholders another weft term to Provide feedback for the consultation Paper so this brings me to the big Question and that's what the UK's Proposed crypto regulations could mean For the crypto Market well aside from That last bit about wanting to force the Crypto industry to comply with ESG they Could be extremely bullish however this Assumes that the crypto regulations Proposed in this consultation paper will Become law as I mentioned at the Beginning of the video the laws Themselves will likely look different I Am a bit concerned that crypto companies That are aligned with entities in the Traditional Financial system will make Them worse this is simply because crypto Has become more than some magic internet Money that's used by shadowy supercoders It is becoming an alternative to the Traditional Financial system and Powerful interests in that traditional Financial system are working to either Integrate it or destroy it before they Lose the Silver Lining is that not all Institutional investors are anti-crypto And at the end of the day it's the money
Of institutional investors that matters It's clear to me that there are some Very powerful pro-crypto interests in The UK because the crypto regulations Being proposed are honestly incredible With some luck these same Pro crypto Interests will ensure that the finalized Crypto regulations look as good if not Better than the ones proposed here it Seems that the only regulatory issues That need to be resolved are those Related to Define other crypto Activities and of course that damn ESG Crap although I'm confident they will be Resolved I'm still concerned that we Could see a sort of counter-offensive From the anti-crypto interests in the UK In the feedback to the consultation Paper the Silver Lining to that is that Even if the finalized crypto regulations Come up short they can always be changed If you watched our video about the Upcoming catalysts for the crypto Market You'll know that institutional investors Will inevitably Lobby to get rid of the Bad crypto regulations particularly Those related to defy and privacy but First we need that investment to come in And that means well regulations make no Mistake the moment that crypto Regulations are introduced in key Jurisdictions around the world Institutional investors will have the Clarity they need to allocate record
Levels of capital into crypto I have a Gut feeling that these regulations could Be the Catalyst for the next bull market Well let's see
