Global effort needed to regulate cryptocurrencies, says Mairead McGuinness

Ireland’s EU commissioner Mairead McGuinness said on Thursday there needs to be a global effort to regulate the burgeoning area of cryptocurrencies to protect small investors from the risks of putting money into the still-volatile asset class.

“When you hear people are taking financial advice on TikTok or through other social media platforms, that young people are engaging with their pals and investing in various cryptocurrencies almost as a pastime, it doesn’t sound alarming. But, of course, the collective activities are alarming if they are not regulated,” Ms McGuinness, the commissioner for financial services, told an online financial forum hosted by IDA Ireland and the Financial Times.

Regulations

While the European Commission has been seeking in recent years to push through regulations on crypto currencies and service providers involved in such assets, Ms McGuinness said that there is a wider “global need for principles around the whole crypto currency space”.

“I don’t want to suggest we are overly alarmed,” she said, adding that she didn’t want to stifle innovation. “But, clearly, there are risks and that’s why the warnings are now coming. We know that there is a lot of money invested in crypto and you can see the volatility.”

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The Financial Stability Board (FSB), a global watchdog that monitors financial authorities in 24 countries, said on Wednesday it is concerned that the scale and structural vulnerabilities of crypto markets have the potential to cause significant disturbance to the global economy.

Use

“Although the extent and nature of use of crypto assets varies somewhat across jurisdictions, financial stability risks could rapidly escalate, underscoring the need for timely and pre-emptive evaluation of possible policy responses,” the Basel-based body said in a report.

The report estimated that crypto asset market capitalisation grew 3.5 times in 2021 to a value of $2.6 trillion (€2 trillion). It warned that if financial institutions continue to become more involved in crypto-asset markets, “this could affect their balance sheets and liquidity in unexpected ways”.

“As in the case of the US subprime mortgage crisis, a small amount of known exposure does not necessarily mean a small amount of risk, particularly if there exist a lack of transparency and insufficient regulatory coverage,” it said.

Participating in another panel at the IDA and Financial Times event, Irish-founded payments group Stripe’s head of revenue and growth for Europe, Middle East and Africa, Eileen O’Mara, said the technology behind cryptocurrencies holds the promise of delivering faster and cheaper ways of payments.

“We were one of the first companies that started experimenting with crypto in the early days,” she said. However, Stripe stopped supporting bitcoin, the best-known cryptocurrency, in 2018, citing the digital coin’s notoriety for volatile price swings and a lack of efficiency in making everyday transactions.

Rich mix

“In ten years, crypto could be part of a really rich mix of payments and innovations, but it’s a little bit unknown. At the moment it still remains a hypothesis what’s going to happen in the mid- to long-term.”

Bitcoin more than doubled in value over the first 11½ months of last year – notwithstanding a sharp sell-off between May and July – to reach an all-time high above $67,000 (€58,620). However, the digital currency subsequently plunged almost 50 per cent, before commencing another rally in late January that stalled this week.

Meanwhile, Mark Stewart, executive director of enforcement at the UK Financial Conduct Authority, told the forum the “very opaque, mysterious” way crypto-markets work, and the “almost randomly volatile” movement in cryptocurrency actions “is very concerning”.

The UK government said last month will bring cryptocurrency ads under tighter scrutiny and crack down on “misleading” claims that may cause investors to lose money.

“Legislation is needed more broadly and it needs to be done globally, as well,” said Mr Stewart.