London Daily

Focus on the big picture.
Tuesday, Apr 07, 2026

0:00
0:00

Crypto crisis means regulation will come sooner rather than later

Cryptocurrencies’ use in avoiding taxes, laws and capital controls makes restrictions seem inevitable
With cryptocurrency prices plummeting as central banks start to raise interest rates, many are wondering if this is the beginning of the end of the bubble. Perhaps not yet. But a higher opportunity cost of money disproportionately drives down the prices of assets whose main uses lie in the future. Ultra-low interest rates flattered crypto, and young investors are now getting a taste of what happens when interest rates go up.

A more interesting question is what will happen when governments finally get serious about regulating bitcoin and its brethren. Of the big economies, only China has so far begun to do so. Most policymakers have instead tried to change the topic by talking about central bank-issued digital currencies (CBDCs).

But this is something of a non sequitur. Although CBDCs are likely to include privacy features for small transactions, larger transactions will almost certainly require individuals to reveal their identity. In contrast, one of the biggest attractions of private cryptocurrencies is the opportunity they offer to bypass governments. True, cryptocurrency transactions are completely traceable through the blockchain ledger, but users typically set up accounts under pseudonyms and are therefore difficult to identify without other information, which is expensive to obtain.

Some economists naively argue that there is no particular urgency to regulate bitcoin and the like, because cryptocurrencies are difficult and costly to use for transactions. Try telling that to policymakers in developing economies, where crypto has become a significant vehicle for avoiding taxes, regulations and capital controls.

For poorer countries with limited state capacity, crypto is a growing problem. Citizens don’t need to be computer whizzes to circumvent the authorities. They can just access one of several simple “off-chain” exchanges. Although cryptocurrency transactions intermediated by a third party are in principle traceable, the exchanges are based in advanced economies. In practice, this makes the information virtually inaccessible to poor-country authorities under most circumstances.

But isn’t this just crypto fulfilling its promise of helping citizens bypass corrupt, inefficient, and untrustworthy governments? Maybe, but, just like $100 bills, cryptocurrencies in the developing world are as likely to be used by malign actors as by ordinary citizens.

For example, Venezuela is a big player in crypto markets, partly because expatriates use them to send money back and forth without it being seized by the country’s corrupt regime. But crypto is also surely used by the Venezuelan military in its drug-smuggling operations, not to mention by wealthy, politically connected individuals subject to financial sanctions. Given that the US currently maintains financial sanctions on more than a dozen countries, hundreds of entities and thousands of individuals, crypto is a natural refuge.

One reason why advanced-economy regulators have been slow to act is the view that as long as cryptocurrency-related problems mainly affect the rest of the world, these problems are not their concern. Apparently buying into the idea that cryptocurrencies are essentially assets in which to invest – and that any transaction’s value is unimportant – the regulators are more worried about domestic investor protection and financial stability.

But economic theory has long demonstrated that the value of any money ultimately depends on its potential underlying uses. The biggest investors in crypto may be in advanced economies, but the uses – and harms – have so far been mainly in emerging markets and developing economies. One might even argue that investing in some advanced-economy crypto vehicles is in a sense no different from investing in conflict diamonds.

Advanced-economy governments will most likely find that the problems with cryptocurrencies eventually come home to roost. When that happens, they will be forced to institute a broad-based ban on digital currencies that do not permit users’ identities to be easily traced (unless, that is, technological advances ultimately strip away all vestiges of anonymity, in which case cryptocurrencies’ prices will collapse on their own). The ban would certainly have to extend to financial institutions and businesses, and would probably also include some restrictions on individuals.

Such a step would sharply undercut today’s cryptocurrency prices by reducing liquidity. Of course, restrictions will be more effective the more countries apply them, but universal implementation is not required for significant local impact.

Can some version of a ban be implemented? As China has demonstrated, it is relatively easy to shutter the crypto exchanges that the vast majority of people use for trading digital currencies. It is more difficult to prevent “on-chain” transactions, as the underlying individuals are harder to identify. Ironically, an effective ban on 21st century crypto might also require phasing out (or at least scaling back) the much older device of paper currency, because cash is by far the most convenient way for people to “on-ramp” funds into their digital wallets without being easily detected.

Just to be clear, I am not suggesting that all blockchain applications should be constrained. For example, regulated stablecoins, underpinned by a central-bank balance sheet, can still thrive, but there needs to be a straightforward legal mechanism for tracing a user’s identity if needed.

When, if ever, might stiffer cryptocurrency regulation actually happen? Absent a crisis, it could take many decades, especially with big crypto players pouring huge sums into lobbying, much as the financial sector did in the run-up to the 2008 global financial crisis. But it probably won’t take nearly that long. Unfortunately, the crypto crisis is likely to come sooner rather than later.
Newsletter

Related Articles

0:00
0:00
Close
King Charles Faces Criticism From Some UK Christians Over Absence of Easter Message
Former UK Defence Secretary Raises Concerns Over Ability to Counter Iran Missile Threat
UK Signals Non-Involvement in Iran Conflict as Trump Reasserts Firm Deterrence Stance
US and UK Strengthen Medical Device Cooperation Following Tariff Removal
Trump Backs Steve Hilton for California Governor, Highlighting Reform Agenda
UK Seeks Closer Ties With Anthropic as AI Policy Divergence Emerges Across Atlantic
Experts Warn of Evolving Extremism After Teens Arrested in UK Ambulance Arson Case
UK Convenes Talks to Safeguard Shipping Through Strait of Hormuz After Conflict Escalation
Trump Highlights Strong Leadership in Critique of UK Stance on Iran
UK Authorities Review Kanye West’s Entry Status Following Festival Backlash
UK Considers Deploying Aircraft Carrier for US Independence Day Celebrations Amid Renewed Transatlantic Focus
United Kingdom Moves to Attract AI Firm Anthropic Amid Tensions with US Defense Officials
RAF Intercepts Iranian Drones in Middle East to Defend Allied Security Interests
Labour Signals Shift on Foie Gras and Fur Restrictions to Advance EU Trade Talks
Seven Arrested Near RAF Base as UK Authorities Respond to Protest Activity
Economic Pressures Mount as Analysts Warn UK Growth Is Being Constrained by Policy Burdens
UK Green Party’s Push for Church-State Separation Sparks Debate Over National Identity
Strategic Island Emerges as Growing Challenge for United States and United Kingdom Defense Planning
Pepsi Pulls Sponsorship from UK Festival Following Backlash Linked to Kanye West
Signs Emerge of Declining Enthusiasm for Social Media in the United Kingdom
Security Alert Raised Ahead of Meghan Markle’s Planned Visit to Australia
UK Food Halls Defy Hospitality Slowdown, Emerging as Bright Spot in Challenging Market
UK Sets Firm Conditions for Military Action, Insisting on Legal Mandate and Clear Strategy
UK Medicines Regulator Launches Probe into Peptide Clinics Over Health Claims
New North Sea Drilling Unlikely to Significantly Cut UK Gas Imports, Analysis Finds
Woman Linked to UK’s First All-Female Terror Plot Faces Deportation
Downed US Aircraft Over Iran Linked to Operations from UK Airfield
Two Men and Teen Detained in UK Following Attack on Jewish Charity Ambulance
UK Police Launch Inquiry After Firearms Left Unattended Outside Mayor’s Residence
Giuffre Family Calls on King Charles to Meet Epstein Survivors During US Visit
Amber Wind Warning Issued as Storm Dave Approaches Parts of the United Kingdom
Prince Harry and Meghan’s Australia Visit Set to Draw Heightened Global Attention
UK Considers Entry Fees for Overseas Visitors at Major Museums Ahead of 2026 Travel Season
UK Prime Minister and Kuwait Crown Prince Coordinate Security Response After Regional Escalation
Calls Grow to Expand Fully Paid Maternity Leave for UK Teachers Amid Workforce Pressures
UK Secures Tariff-Free Access to US Market in Landmark Pharmaceuticals Agreement
Trump Projects Strength in Critique of UK Leadership and Naval Readiness
UK FinTech Setback as VibePay and Smartlayer Cease Operations Amid Funding Pressures
UK Leads Global Coalition of Over Forty Nations to Address Strait of Hormuz Crisis
UK Firms Urged to Accelerate Preparation as New Sustainability Reporting Rules Take Shape
UK Moves Rapid Sentry Air Defence System to Kuwait After Drone Strike Escalation
Transatlantic Relations Tested as UK Seeks Balance While Trump Reshapes Strategic Approach
Trump’s Strategic Pressure on UK Seen as Push for Stronger Alignment and Fairer Terms
UK Focuses on Trade Finance to Secure Critical Materials for Defence and Energy Sectors
Majority of UK Businesses Hit by Middle East Conflict While Confidence Holds Firm
UK Royal Navy Faces Renewed Scrutiny as Debate Intensifies Over Capability and Readiness
Reform UK Faces Mounting Distractions as Policy Agenda Struggles to Gain Traction
Investigation Launched Into Northern Cyprus IVF Clinics After UK Families Receive Incorrect Sperm
International Meeting Issues Unified Call to Safeguard Navigation Through Strait of Hormuz
Potential Strait of Hormuz Closure Raises Concerns Over UK Food and Medicine Supply Chains
×