17th May 2023 > > The UK.

tl;dr

The UK lawmakers flaunt their prejudices and ignorance, whilst wilfully avoiding the ever-increasing mountain of evidence to the contrary.

Market Snap (at time of writing)

Market Wrap

There is little evidence of the first quarter’s euphoria as spring passes us by. MiCA (Markets in Capital Assets) passed its final legislative test with a unanimous vote in favour by the EU Council, proving that the EU can be nimble and fleet of foot when it wants to be. Or at least relatively so – implementation won’t be before 2025 but that isn’t materially relevant. What is important is that the crypto industry now knows for certain the legislative landscape and can work within that.

Curious Cryptos’ Commentary – The UK

In a report published today, the Treasury Committee gives its insights into cryptos crypto regulation:

https://committees.parliament.uk/publications/39945/documents/194832/default/

Depressingly the scene is set in the very first sentence of this report:

“So-called “cryptoassets” span a wide and rapidly evolving range of digital instruments, although the market continues to be dominated by unbacked “cryptocurrencies” such as Bitcoin and Ether that we do not consider to have any intrinsic value.”

Paragraph three repeats the same old tired tropes we always hear from the naysayers:

“They (cryptoassets) can consume very large amounts of energy and are also used by criminals in scams, fraud and money laundering.”

Accompanying the release of the report, Harriet Baldwin, Chair of the Treasury Committee, displays an astonishing degree of prejudice against, and ignorance of, the greatest technological revolution in the history of humankind:

“However, with no intrinsic value, huge price volatility and no discernible social good, consumer trading of cryptocurrencies like Bitcoin more closely resembles gambling than a financial service …”

…

The rest of the twenty-six pages in this report provides far less insight than even an occasional and cursory glance at the CCC gives to you so I really don’t want anyone to waste their time on it.

Except for the conclusion, referred to by Baldwin above:

“We strongly recommend that the Government regulates retail trading and investment activity in unbacked cryptoassets as gambling rather than as a financial service, consistent with its stated principle of ‘same risk, same regulatory outcome’.”

…

Income from gambling is not subject to any form of taxation in the UK.

Curious Cryptos’ Commentary – GFMA (Global Financial Markets Association)

The GFMA, a lobby group for TradFi, yesterday released a report examining the potential impact of DLT (distributed ledger technology) in global capital markets:

https://www.gfma.org/wp-content/uploads/2023/05/impact-of-dlt-on-global-capital-markets-full-report.pdf

This analysis claims that the benefits of DLT will be seen across the entire banking operation.

The obvious use case will be to improve and streamline back-office systems especially regarding settlements and associated reconciliations. Euroclear which holds $41 TRILLION of custodied assets on behalf of the finance industry announced on March 23rd that it has begun the process of integrating DLT. Operational savings are estimated at $15-20 billion annually across the sector, though I suspect it will be a lot more than that.

Primary and secondary markets will benefit from the tokenisation of real-world assets, increasing liquidity, improving risk management, and bringing the potential for new areas of investment to retail and institutional investors. Citibank recently estimated that blockchain based tokenised investments will exceed $5 TRILLION by the end of this decade, whilst this report claims a figure of $16 TRILLION. The efficiency gains from tokenisation will provide a much needed boost to industrial productivity.

Within the collateralised sector, including repos, it is estimated that $100 billion of freed financial resources per annum will be redeployed into more productive investments.

And there is plenty more in these 188 pages, which I cannot claim to have read in its entirety (yet), but the message is clear.

DLT, of which blockchains and cryptos form a key part, has huge potential in the financial industry.

…

These vast improvements in the efficiency of the banking system, and the freeing up of resources, unlocked by cryptos will benefit us all by reducing the cost of capital for productive investment by the private sector.

However, I feel duty bound to remind you that according to Baldwin above “ … (cryptos have) no discernible social good”.