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Banks and payments early winners of the crypto price crash

Author: ICAEW Insights

Published: 03 Aug 2022

As cryptocurrency prices plummet, watchdogs and central banks are seeking regulation to protect consumers from risk. But will this stifle innovation?

Cryptocurrency prices have suffered an almighty crash following a red-hot bull run, sparking what some expect to be a wave of regulation-induced consolidation for the burgeoning crypto industry as it refocuses on digital payments. 

“Wall Street and the City will look to buy during the crypto winter,” said Tom Spiller, crypto expert and Senior Associate at legal firm Rosenblatt, speaking to ICAEW.

Spiller pointed to the news last month that Goldman Sachs is looking to raise $2bn from investors to buy up distressed assets from bankrupt crypto lender Celsius, a victim of the fallout from the collapsed Terra stablecoin – which was designed to be pegged to the US dollar before it imploded and fell to effectively zero.

Payments were this month named by CEO of crypto exchange FTX Sam Bankman-Fried – branded crypto’s ‘lender of last resort’ for his bailouts of distressed crypto companies – as the first of three ‘potential use-cases for crypto’ in a detailed Twitter thread.

The $2trn crypto market meltdown is also expected to trigger a flood of new regulations for the crypto industry as watchdogs and central banks look to protect consumers from unreasonable risk and bring the fast-growing stablecoin market under the regulatory umbrella. Some fear this will entrench financial incumbents and hobble attempts at innovation.

This includes the assignment of crypto as a new asset class, as described in the Financial Services and Markets Bill, currently working its way through Parliament. The Bill sets cryptocurrencies as ‘digital settlement assets’ that provide a digital representation of value or rights, and to set new rules on stablecoins.

“Some regulations will be too bank-centric and detrimental to the crypto industry,” said Nicholas Du Cros, Head of Compliance and Regulatory Affairs at digital asset manager CoinShares, speaking over the phone and warning the conversation has changed since the implosion of the Terra ecosystem. 

“Pushing the crypto world toward regulation will be a protective moat for the banking industry.”

You can read more about this from the Financial Services Faculty here: Could a crypto crisis progress digital payments?

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