The cryptocurrency sector has yet to pull the proverbial magic rabbit from its top hat.
The audience, having purchased tickets to the show, are now realizing they may leave empty-handed as their hard-earned money pulls a disappearing act.
This, as over a decade has passed since digital assets first entered the public consciousness with far-ranging claims to one day revolutionize the global financial system.
Instead, as each day passes, the premise and promise of the sector have been successively battered by bad actors and back-door platforms, leaving its future more uncertain than ever.
On Thursday (March 2), the U.K. banks HSBC and Nationwide Building Society announced they were banning cryptocurrency purchases using credit cards for their retail customers and tightening restrictions on debit-card purchases of crypto to a daily limit of $6,000.
The U.K. Financial Conduct Authority (FCA) has labeled crypto as high risk for several years, even threatening crypto executives with jail time if they violate certain rules, as reported by PYMNTS in February.
U.S. regulators, including the Federal Reserve, have told financial institutions to be wary of “potential heightened liquidity risks” presented by certain sources of funding from crypto-related entities, while the Securities and Exchange Commission (SEC) is keeping up its full-court press on the digital asset industry by telling investment advisers to be wary of cryptocurrency trading and lending platforms, emphasizing that they cannot be relied upon as qualified custodians.
“To be clear: just because a crypto trading platform claims to be a qualified custodian doesn’t mean that it is. When these platforms fail — something we’ve seen time and again — investors’ assets often have become property of the failed company, leaving investors in line at the bankruptcy court,” SEC chair Gary Gensler said Thursday (March 2).
A paper published Feb. 23 by the International Monetary Fund (IMF) listed chief among its nine-point action plan for how countries should deal with crypto the urging to not make crypto legal tender and keep it separate from the traditional banking sector.
While the IMF doesn’t have the power to stop countries, such as El Salvador, from making crypto legal tender, it does have the ability to choose to refuse to lend to them if they do so.
As reported by PYMNTS, Agustín Carstens, general manager of the Bank for International Settlements (BIS), said on Feb. 22 that crypto’s underlying technology does not pave the way for “trusted money.”
Even the inventor of the world wide web, Tim Berners-Lee, has gone on record recently stating that crypto is “only speculative.”
As PYMNTS CEO Karen Webster wrote back in 2017, “bitcoin was an interesting, even fascinating, innovation, but not the salvation of our global financial system — not even close.”
Her prescient piece adds, “The conversations we are having now about bitcoin and cryptocurrencies seems to have lost sight of the problem that needs solving as we look at the evolution of global financial services and the networks that power them. No one will argue that things could be more efficient — and that the ability to digitize, secure, make smarter and settle digital assets in real or near real time is worth exploring — and has a great potential upside … But does that require bitcoin [or one of the many thousand cryptocurrencies] to do it? Only if you want to build something that operates completely outside the current global financial services ecosystem…begging the question about the relevance of cryptocurrency beyond using it to do things that cannot be lawfully done with fiat currency.”
It took five years and a rollercoaster of rises and falls, but the rest of the world now appears to be wising up.
To protect both themselves and their customers, banking institutions are increasingly putting crypto-specific limits on their services.
In the U.K., institutions, including Banco Santander SA and Natwest Group Plc have already banned crypto and refused to serve businesses customers who accept digital assets as payment.
In the U.S., as previously covered by PYMNTS, banks like Silvergate Capital which leaned into the crypto boom and made catering to the industry a key part of its business, are now facing the realities of a challenging new regulatory, retail and risk landscape that could impact its “going concern” viability.
After all, when the emperor has no clothes, it becomes a growing reputation risk to be seen out in public with them.
Still, as Chainalysis Chief Product Officer Pratima Arora tells PYMNTS, “It’s times like these — bear markets — when changes in crypto technology happen.”
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