Government plans to crackdown on cryptocurrencies have led experts to believe it’s a signal to start taking the growth of digital currency seriously.
The government has confirmed its intention to lay the foundations of regulation around Bitcoin and other cryptocurrencies through amendments to a piece of EU legislation - the ‘4th Anti-Money Laundering Directive’ - that is set to be implemented in 2018.
A spokesperson for the Treasury says of the Directive: “We are working to address concerns about the use of cryptocurrencies, by negotiating to bring virtual currency exchange platforms and some wallet providers within Anti-Money Laundering and Counter-Terrorist Financing regulation.”
According to the Treasury, the amendments will enable the authorities to oversee the activity of businesses that trade Bitcoin and other digital currencies in much the same way that the Financial Conduct Authority oversees the activity of major banking institutions regarding fraud prevention.
The government says it is aware of the risks of digital currencies, especially regarding the facilitation of cyber crime. It also says that while there is little evidence that crimes such as money laundering are widespread, it does believe the risk of such crimes will only grow.
The plans were initially revealed at the beginning of November after economic secretary to the Treasury, Stephen Barclay MP, responded to a parliamentary question asking what steps were being taken to regulate Bitcoin and other currencies. However, the bulk of the detail has yet to be announced.
‘These new developments mean that Bitcoin is here to stay’
Nicholas Gregory, chief executive officer of CommerceBlock, a blockchain construction company, comments: "What some will bill as censure, the cryptocurrency community will deem a stamp of approval that finally recognises the pivotal role that digital currencies will ultimately hold for the global economy.
"It's important to remember that Bitcoin exchanges are already regulated as money service businesses in the US and that has failed to pour any cold water on Bitcoin's incredible growth story.
"That's why any suggestion that Bitcoin is used by money launderers any more than traditional currencies is a fallacy.
"The UK and Europe are playing catch up to some degree here but they are on the right page. Industry players want the same thing as politicians - cryptocurrencies that offer cheap, frictionless, international transactions used for legal purposes.
"If anything, regulation will only increase Bitcoin's rate of growth as regulation lends credibility and engenders trust."
Rebecca O’Keeffe, head of investment at Interactive Investor - Moneywise’s parent company - adds: “Whether you love it and have actively embraced the technology, or hate it and think that it makes tulips look positively sensible, the level of interest in Bitcoin mean it is important to have a view on cryptocurrencies.
“The Treasury note confirming it intends to regulate the digital currency is another step recognising its appeal. Like it or not, these new developments mean that Bitcoin is here to stay.”
‘Serious investors thinking about buying Bitcoin ought to wait’
Recently the media coverage of Bitcoin has been somewhat like the value of Bitcoin – it has rather exploded out of nowhere.
At the start of December 2016, the so-called digital cryptocurrency was valued at $750 per Bitcoin. But it has since smashed through $11,000, a more than 1,300% increase. For that reason, it has received a glut of media attention in recent days and weeks.
But despite widespread coverage and entrance into public consciousness, it is important to remember that Bitcoin still represents a very niche type of investment and it’s an unregulated market in the UK for the time being.
David Coker, lecturer in accounting, finance and governance at Westminster Business School and former vice president of global risk management at Deutsche Bank, comments: “Clearly speculative money is flowing into Bitcoin, driven by relentless media coverage and, of course, meteoric price increases but this should not lead us to assume that extreme price volatility is a permanent feature of Bitcoin.
“The entry of institutional investors into the market will bring a longer-term perspective to the asset class and they will likely stabilise prices over time through their use of derivatives. As frustrating as it might be, sometimes the best thing to do in a fast-moving market is nothing.
“Serious investors thinking about buying Bitcoin ought to wait for institutional investors to enter the market as they’ll likely stabilise Bitcoin’s wild price swings.”