Bitcoin Under Regulator Microscope

The regulatory focus is back on Bitcoin and its impact on the financial markets after the Bull run of the last few days. The concern is that Bitcoin is getting too big to continue without any oversight by financial regulators.

Price considerations apart, Bitcoin has a reputation for being the payment solution of choice for criminal activities hiding behind the anonymity or rather pseudo-anonymity of cryptos.

The UK’s FCA (Financial Conduct Authority) joined the European Central Bank to call for more stringent oversight and regulations for cryptocurrencies. Bitcoin’s extreme volatility over the last few weeks and increasing value, almost €32,000 at the time of writing, makes any positions in the crypto “highly speculative” in the words of European Central Bank president Christine Lagarde.

Her comments came on the back of a warning issued by the FCA that anyone trying their hand on Bitcoin schemes “should be prepared to lose all their money.”

Bitcoin has been on a sustained Bull run, gaining over 300 percent in 2020, continuing this into January this year to reach a high of over $40,000.

While this extreme volatility has deterred most institutional investors, the potential gains have been hard for private investors and hedge funds to ignore. Without a clear regulatory framework and oversight, the fear is that Bitcoin, among other cryptocurrencies, will become the favorite target for pump and dump schemes, driving prices up artificially then simply liquidating their holdings for the quick profit.

ECB president Ms. Lagarde stated that ongoing criminal investigation clearly demonstrated that Bitcoin was being used in illegal activities, including money laundering.

Her comments came on the back of an operation by German police that shut down a dark web operation involved, among other things, in drug deals worth over €140 million using Bitcoin and Monero. A joint operation headed by Europol leads to the arrest of a thirty-four year old Australian national and the seizure of over twenty computer servers in Ukraine and Moldova.

In the UK, the FCA expressed its concerns about the rise in unauthorized investment schemes offering huge returns on Bitcoin speculation. The nature of cryptocurrencies means consumers in the UK are not eligible for any regulatory protection for cryptocurrency speculation.

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