True believers in cryptocurrency have had a rough few weeks. The US government fined the world’s largest crypto exchange, Binance, US$4.3 billion (£3.4 billion) for money laundering and imposed intrusive monitoring and a $50 million personal fine on its secretive boss, Changpeng Zhao. Zhao, known as CZ, has been called the most powerful man in crypto.
The industry is also reeling from the conviction of Zhao’s bitter rival, Sam Bankman-Fried, on seven counts of fraud and conspiracy. His company, FTX, previously the second-largest crypto exchange in the world, collapsed in November 2022. SBF faces a potential sentence of more than 100 years in prison when he is sentenced in March 2024. Several other former leading crypto executives are also under investigation or being prosecuted.
Crypto has just squared off against the US state, and the result is state power 2—crypto 0. What is the future of crypto regulation in the UK in light of this display of muscular regulation on one side of the Atlantic?
The UK government has repeatedly voiced its ambition to make the UK a global crypto hub. The new minister for the City of London, Bim Afolami, warned regulators against going overboard. He said, “It’s really important that we don’t tar every crypto business as being like FTX or Binance.”
However, this could put Afolami and the government on a collision course with the UK regulator, the Financial Conduct Authority (FCA). FCA chair Charles Randell criticized the government’s plans to treat crypto like any other financial investment, saying they risked normalizing crypto despite fraud “being a feature, not a bug” of much of the sector.
Research shows that British people may respond to revelations of wrongdoing in the sector by wanting to regulate crypto more severely. Through the Banklash research project, my colleagues and I have studied what happens to public opinion when exposed to news about financial scandals. We found that in multiple countries, the public has clear views about financial regulation, and that when they read about scandals, their demand for regulatory stringency increases.
We have followed up this research with a study this year of British attitudes towards cryptocurrency. Our new work suggests that the FCA is more in tune with British public opinion than the government. Among the four countries we surveyed in March 2023, British respondents expressed the highest level of support for crypto regulation. Reading about the FTX scandal caused a significant increase in the appetite to regulate crypto among Brits.
UK politicians should take these views into account when trying to balance demands for regulatory stringency and the economic defense of London’s status as an international financial hub. Political leaders in the UK should not deceive themselves that the general public doesn’t understand these issues. People have views about cryptocurrency, and even on a subject as apparently baffling as crypto, you can’t fool all of the people all of the time.
