London Daily

Focus on the big picture.
Thursday, Jan 22, 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
Trump Reverses Course and Criticises UK-Mauritius Chagos Islands Agreement
Elizabeth Hurley Tells UK Court of ‘Brutal’ Invasion of Privacy in Phone Hacking Case
UK Bond Yields Climb as Report Fuels Speculation Over Andy Burnham’s Return to Parliament
Trump’s Board of Peace: Breakthrough Diplomacy or a Hostile Takeover of Global Order?
Trump’s Board of Peace: Breakthrough Diplomacy or a Hostile Takeover of Global Order?
The Greenland Gambit: Economic Genius or Political Farce?
The Greenland Gambit: Economic Genius or Political Farce?
The Greenland Gambit: Economic Genius or Political Farce?
Will AI Finally Make Blue-Collar Workers Rich—or Is This Just Elite Tech Spin?
Prince William to Make Official Visit to Saudi Arabia in February
Prince Harry Breaks Down in London Court, Says UK Tabloids Have Made Meghan Markle’s Life ‘Absolute Misery’
Malin + Goetz UK Business Enters Administration, All Stores Close
EU and UK Reject Trump’s Greenland-Linked Tariff Threats and Pledge Unified Response
UK Deepfake Crackdown Puts Intense Pressure on Musk’s Grok AI After Surge in Non-Consensual Explicit Images
Prince Harry Becomes Emotional in London Court, Invokes Memory of Princess Diana in Testimony Against UK Tabloids
UK Inflation Rises Unexpectedly but Interest Rate Cuts Still Seen as Likely
AI vs Work: The Battle Over Who Controls the Future of Labor
Buying an Ally’s Territory: Strategic Genius or Geopolitical Breakdown?
AI Everywhere: Power, Money, War, and the Race to Control the Future
Trump vs the World Order: Disruption Genius or Global Arsonist?
Trump vs the World Order: Disruption Genius or Global Arsonist?
Trump vs the World Order: Disruption Genius or Global Arsonist?
Trump vs the World Order: Disruption Genius or Global Arsonist?
Arctic Power Grab: Security Chessboard or Climate Crime Scene?
Starmer Steps Back from Trump’s ‘Board of Peace’ Amid Strained US–UK Relations
Prince Harry’s Lawyer Tells UK Court Daily Mail Was Complicit in Unlawful Privacy Invasions
UK Government Approves China’s ‘Mega Embassy’ in London Amid Debate Over Security and Diplomacy
Trump Cites UK’s Chagos Islands Sovereignty Shift as Justification for Pursuing Greenland Acquisition
UK Government Weighs Australia-Style Social Media Ban for Under-Sixteens Amid Rising Concern Over Online Harm
Trump Aides Say U.S. Has Discussed Offering Asylum to British Jews Amid Growing Antisemitism Concerns
UK Seeks Diplomatic De-escalation with Trump Over Greenland Tariff Threat
Prince Harry Returns to London as High Court Trial Begins Over Alleged Illegal Tabloid Snooping
High-Speed Train Collision in Southern Spain Kills at Least Twenty-One and Injures Scores
Meghan Markle May Return to the U.K. This Summer as Security Review Advances
Trump’s Greenland Tariff Threat Sparks EU Response and Risks Deep Transatlantic Rift
Prince Harry’s High Court Battle With Daily Mail Publisher Begins in London
Trump’s Tariff Escalation Presents Complex Challenges for the UK Economy
UK Prime Minister Starmer Rebukes Trump’s Greenland Tariff Strategy as Transatlantic Tensions Rise
Prince Harry’s Last Press Case in UK Court Signals Potential Turning Point in Media and Royal Relations
OpenAI to Begin Advertising in ChatGPT in Strategic Shift to New Revenue Model
GDP Growth Remains the Most Telling Barometer of Britain’s Economic Health
Prince William and Kate Middleton Stay Away as Prince Harry Visits London Amid Lingering Rift
Britain Braces for Colder Weather and Snow Risk as Temperatures Set to Plunge
Mass Protests Erupt as UK Nears Decision on China’s ‘Mega Embassy’ in London
Prince Harry to Return to UK to Testify in High-Profile Media Trial Against Associated Newspapers
Keir Starmer Rejects Trump’s Greenland Tariff Threat as ‘Completely Wrong’
Trump to hit Europe with 10% tariffs until Greenland deal is agreed
Prince Harry Returns to UK High Court as Final Privacy Trial Against Daily Mail Publisher Begins
Britain Confronts a Billion-Pound Wind Energy Paradox Amid Grid Constraints
The graduate 'jobpocalypse': Entry-level jobs are not shrinking. They are disappearing.
×