Crypto Update: London Lags Euro Capitals In Payments Reckoning

What’s the latest news from the world of cryptocurrency? We monitor all the latest moves and keep you updated regularly with the key developments.

Please be aware that the UK financial regulator, the Financial Conduct Authority, has issued repeated warnings about the risks faced by those who invest in cryptocurrency, stating that all funds are at risk and investors could lose everything. Cryptocurrency trading is largely unregulated in the UK and no compensation arrangements are in place.

Got a crypto story to share? Email: mhooson@forbesadvisor.com

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24 January: UK Cities Trail Europe In Using Cryptocurrency

Cities in the UK lag behind those in Europe in terms of paying with cryptocurrencies, according to new data, writes Mark Hooson.

London saw £7.5 million worth of crypto transactions between January 2019 and September 2022, a figure significantly lower than comparable cities in the European Economic Area (EEA).

Research conducted by finance platform Solaris found Paris, France recorded the most crypto transactions during that period, with payments worth £22 million. 

Madrid in Spain had the second most transactions, with payments worth £16.8 million, followed by Berlin, Germany at £16.6 million and Sofia, Bulgaria at £13.8 million.

The £7.5 million spent in London accounted for 37% of the UK’s cryptocurrency transactions. Other British cities recorded far smaller numbers, with Birmingham, Leeds and Glasgow accounting for 3%, 1% and 0.3% of the total spend, respectively.

The average value of each crypto transaction was £40 and typically paid for money transfers, hotel bookings and online ecommerce in retailers such as Amazon. 

People aged 21-42 made 72% of all crypto transactions, while 24% were made by those aged 43 to 64. Under 21s and over-65s each made up an equal 2% share of the payments.

Ben Hall at Solaris said: “We are increasingly seeing brands beginning to accept cryptocurrencies as a payment option. However, the real key to making crypto spending successful lies in enabling consumers to spend both fiat and cryptocurrency instantly at the point of sale via contactless payment.”

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4 January: Federal Reserve Alert To ‘Significant Threat’ To Financial System

The US central bank has warned that cryptocurrencies pose a “significant” threat to the wider banking system, writes Mark Hooson.

In a joint statement, the Federal Reserve and US regulators including the Office of the Comptroller of the Currency – a branch of the US Treasury – said that risks related to the crypto industry must not be allowed to migrate to the banking system.

Citing the “significant volatility” of the industry in the past year, the Fed said banking organisations should be aware of key risks including scams and fraud and inaccurate or misleading representations and disclosures by crypto-asset companies.

The unprecedented warning came two months after the $1 billion collapse of the FTX crypto exchange and moments before its co-founder and ex-CEO, Sam Bankman-Fried, pleaded not guilty to eight counts of wire fraud, securities fraud, and conspiracy. 

If found guilty, Mr Bankman-Fried could face more than 100 years in prison for his alleged role in the exchange’s collapse.

Last month, Ashley Alder, the incoming chair of the UK financial regulator, the Financial Conduct Authority (FCA), said crypto exchanges can facilitate money laundering. 

At present, cryptocurrency trading is largely unregulated in the UK. Consultations about bringing it into UK regulation as part of the Financial Services and Markets Bill are ongoing.

Laith Khalaf, head of investment analysis at AJ Bell, said: “This is a significant public intervention and a clear shot across the bows for both the banking and crypto industries, which shows how concerned regulators are about crypto risks spilling over into mainstream financial institutions.

“Those who remember how a downturn in the US housing market led to the collapse of Lehman Brothers may well be wondering if crypto is the new version of the disreputable mortgage-backed security, a complex financial product which permeated the banking industry and helped to foment the global financial crisis”

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19 December: Alder Says Platforms Should Face Further Regulation

Ashley Alder, who will chair the Financial Conduct Authority from 20 February next year, told the House of Commons Treasury Committee last week that crypto platforms are “deliberated evasive” and a method by which “money laundering happens at size”

Mr Alder, who is the CEO of the Securities and Futures Commission of Hong Kong until the end of the year, was asked for his views by Harriet Baldwin MP, chair of the committee and Conservative member for West Worcestershire: “Can you just tell us, very quickly, what your view is overall in terms of crypto assets and cryptocurrency? Do you own any? Should they be regulated further in the UK?”

Mr Alder replied: “I do not own any and they should be regulated further.

The point is this: when it comes to crypto assets, as distinct from the underlying blockchain, our experience to date of platforms… is that they are deliberately evasive. They are a method by
which money laundering happens at size.

“More importantly, from the public’s perspective, the way in which they bundle a whole set of activities that are normally segregated in conventional finance gives rise to massively untoward risk, whether it is segregation of assets or conflicts of interest.”

Mr Alder’s tough stance, in the wake of the collapse of the FTX platform last month, raises the prospect of FCA intervention in the crypto market in 2023. At present, the market is largely unregulated, and the regulator has repeatedly issued warnings to UK investors about the risks involved in investing in crypto currency.

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14 November: Binance Not At Fault For FTX collapse, MPs Hear

Crypto exchange Binance defended itself against claims of responsibility for the recent collapse of rival firm FTX today, in an exchange with members of parliament in a Treasury Committee meeting, writes Mark Hooson.

FTX filed for bankruptcy last week after questions over its liquidity led to a run on the exchange – see story below. Binance looked poised for a buyout but walked away from the deal before offloading its holdings of FTT – the native currency of FTX.

Binance’s European head of government affairs, Daniel Trinder told the Committee that, while the company had begun the process of buying FTX, it pulled out of the proposed deal when due diligence checks revealed “something was very wrong”.

Mr Trinder told the Treasury Committee, which convened for the first time to discuss the future of cryptocurrency in the UK, it wasn’t Binance’s intent to cause FTX’s collapse. He said the company’s failure had set the industry back “a couple of years”.

CryptoUK’s Ian Taylor and Ripple’s Susan Friedman also gave evidence to the committee, which heard arguments for formal regulation to protect investors. Also giving evidence, Galaxy Digital’s Tim Grant said the industry had a “governance problem, not a crypto problem”.

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10 November: FTX On The Brink After U-Turn On Bailout Talks

In a swift U-turn, Binance has abandoned its plan to rescue arch-rival FTX, the beleaguered cryptocurrency exchange beset by a wave of customer withdrawals earlier this week that left it suffering from a severe liquidity crisis, writes Andrew Michael.

Yesterday (Wednesday), it appeared that a deal had been struck that, subject to corporate checks, would have resulted in Binance’s takeover of FTX (see story below).

Less than 24 hours later, however, the arrangement lay in ruins after Binance cited concerns about FTX’s business practices and investigations by US financial regulators.

“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance said in a statement late on Wednesday.

“Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or the ability to help,” the company added.

Binance and FTX are two of the crypto industry’s largest offshore exchanges. FTX was forced to ask Binance for a bailout after customers tried to withdraw $6 billion 72 hours – the crypto equivalent of a run on a bank, where a large group of depositors simultaneously withdraw their money from an institution fearing it will  become insolvent.

Binance’s decision to walk away from a bailout has plunged the future of FTX into fresh doubt, as it emerged that the company’s relationship with FTX founder Sam Bankman-Fried’s other businesses was set to be investigated by US regulators.  

In the past, Mr Bankman-Fried has been hailed as the ‘white knight’ of the cryptocurrency industry, after he stepped in to provide hundreds of millions of dollars to other struggling crypto businesses in the face of the so-called ‘crypto winter’.

This event took place earlier in 2022 when the price of Bitcoin, the world’s largest cryptocurrency, plunged below the $20,000 mark for the first time in two years.

On Wednesday, Bitcoin’s price dropped just over 12% to leave the coin trading at a shade over $16,000. In November last year, Bitcoin reached an all-time peak of around $69,000.

In light of recent events, analysts at JP Morgan Chase have warned that Bitcoin could lose 80% of its value amid “a cascade of margin calls”. In a note, the Wall Street bank said Bitcoin could tumble as low as $13,000.

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9 November: FTX Reaches Out For Help After Surge In Withdrawals At Exchange  

The digital assets industry has been left reeling following the near collapse of FTX, one of the largest cryptocurrency exchanges, which secured a bailout deal with arch-rival Binance, after a wave of customer withdrawals led to a liquidity crisis, Andrew Michael writes.

A merger of the two largest offshore cryptocurrency exchanges comes in the wake of a public stand-off between Binance chief executive, Changpeng Zhao, and FTX’s boss, Sam Bankman-Fried that prompted a bank run at the latter’s exchange and resulted in a forced sale of the business yesterday (Tuesday 8 November).

The companies did not immediately disclose terms, but the deal ends the spat between Bankman-Fried and Zhao who are two of the most influential figures within the crypto sector.

Cryptocurrency investors were rattled last weekend when Zhao said he would liquidate his firm’s holdings in his rival’s FTT token. On Monday this week FTX experienced net outflows of $653 million as investors moved their assets off the exchange. FTT’s value…