Until 2017 cryptocurrencies weren’t really on most people’s radar, but then bitcoin hit the headlines with its near 20-fold increase in value and repeated mood swings and people couldn’t help but notice.
Also noticed was the fact that bitcoin and all the other cryptocurrencies were operating by their own rules and that there was very little comeback if things went wrong.
Many influential figures have made it clear that this cannot continue and that virtual currencies cannot expect to remain beneath the regulatory radar.
The IMF’s chief Christine Lagarde has said that it is “inevitable” that cryptocurrencies will come under “international regulation and proper supervision”.
Yves Mersch, a member of the executive board at the European Central Bank, and Agustin Carstens, general manager of the Bank for International Settlements, have both likened cryptocurrencies to Ponzi schemes. They want virtual currencies to be subject to the same rules as other exchanges and financial products.
Initial criminal offering
The increase in popularity of cryptocurrencies has led some to see them as a licence to mint money, with initial coin offerings a particular favourite.
Some ICOs have been plain fraud; others extremely wishful thinking. Research by bitcoin.com puts the total funding raised by failed ICO projects in 2017 at $233m.
Then there was the inadequate security. An Ernst & Young report found that cyberattackers had taken 10% of the total value of ICOs between 2015 and 2017, helping themselves to more than $400m.
Daniel Aranda, managing director of cryptocurrency Ripple says: “I think in the first half of 2018, we will see regulators worldwide come down very hard on many illegitimate, fraudulent ICOs and the people behind them. Lawsuits, fines, and jail time would not be a surprise.”
Hackers have also taken a liking to raiding currency exchanges. Last month Japanese currency exchange Coincheck lost $500m this way.
While regulation does seem inevitable, consensus on the form that regulation should take seems far less likely as countries already have diverse approaches to cryptocurrency trading.
South Korea has acted early to regulate trade in virtual currencies. Part of the appeal of cryptocurrency investment is the anonymity of it all - it is difficult to track transactions.
Last month the country ruled that virtual coin purchases could only come from named bank accounts, citing its anti-money laundering rules.
Other countries have gone further. China is reported to have blocked all websites relating to cryptocurrency trading and ICOs, including foreign platforms. India does not recognise cryptocurrencies as legal tender.
Japan, on the other hand, recognises bitcoin as a legal payment method and has issued operating licences to its bitcoin exchanges. Denmark, Sweden and Estonia also allow trading.
Some joined-up thinking?
Some agreement on what should be done about cryptocurrencies may be found at the G20 meeting in Argentina later this month.
There, France’s minister of the economy, Bruno Le Maire and governor of the Bank of France, Francois Villeroy De Galhau, plus Germany’s acting finance minister Peter Altmaier and president of the Deutsche Bundesbank, Jens Weidmann, plan to raise the matter. They want “trans-boundary” action to regulate cryptocurrencies.