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0.1% Value Is Enough For The Crown

Oleg Koldayev

In the first quarter of next year, the Financial Conduct Authority (FCA) of Great Britain may ban the sale of cryptocurrency derivatives. According to the regulator, they "cannot fully protect the rights of investors due to the absence of intrinsic value in virtual assets." What lies behind such vague wording?

FCA statement appeared exactly after the publication of the full version of the report of the Fintech Commission affiliated to the British Government - the main advisory body involved in the preparation of the legislative framework for regulating the digital market. The document specifically states that both Her Majesty’s Treasury, the Bank of England, and the Office of Financial Regulation and Supervision will “encourage responsible development in the sphere of the fully legitimate use of the distributed ledger technology and digital assets”.

However, the report has one interesting reference, partly revealing the true views of the English government on the digital market: “The technology requires further development
before it can be applied on a massive scale to translate these possibilities into action.” In other words: it will be used when they will be able to avoid anonymity and decentralization, which irritate regulators. And today – there is strict regulation and prohibitions.

Then, why is FCA so afraid of the penetration of digital trading tools in particular into the national market, for example, the same crypto-derivatives, while the traditional green light is on everywhere?

The main claim of the royal officials to cryptocurrency derivatives is the following: this is a high-risk asset, because, unlike classical derivative financial instruments, there are no
material assets behind it, for example, futures contracts or credit agreements. Although it is worth noting that classical derivatives have no real value. In fact, these are bets on any event that may or may not happen. Banks, for example, have often been faulted for turning Wall Street into the largest casino in the world.

Today, the volume of the world market of classical derivatives reaches $500 trillion, which exceeds the total GDP of the G20 countries ($64.377 trillion) by 7.8 times! At the same time, according to experts’ opinion, the real value of the assets in derivative securities does not exceed $50 billion. That is, there is only 0.1% of the value behind the entire market!

It was about this phenomenon that Warren BUFFET said once: “I consider derivatives to be a ticking-time-bomb both for the parties that enter into such contracts and for the entire economic system. From my point of view, derivatives are financial weapons of mass destruction carrying a threat, which is currently invisible, but can be lethal in the future.”

In this case, can cryptocurrency derivatives be faulted for lack of reliability, when the very
nature of this financial instrument does not imply it? Probably, the real reason for aiming to shut the door on the digital market lies somewhere else.

The former Head of the US Federal Reserve System Jannet YELLEN, speaking at the Fintech Forum in Montreal, said the sacramental phrase:

“It has long been believed that in order for a currency to be useful, it should be perceived as a stable source of value, and bitcoin is something else. It is not used for a large number of transactions, is not a stable source of value, and is not an effective means of processing payments. It is too slow, and is experiencing great difficulties due to excessive decentralization.”

What else can be added to the words of the Head of the FRS? The economic elites of developed countries really perceive virtual assets as a threat. It does not matter whether they are reliable, volatile or stable, whether social capital is behind them or not. The problem is that they are decentralized, and, therefore, are not subject to the political and economic authorities of any state.

Regulators of the United States and the European Union are constantly talking about risks for investors and consumers, but they are silent about their own risks, about the possible loss of political control over the financial system in particular.

Today, leaders of many states are paying attention to the digital economy. Someone is just trying to understand what it is, and someone directly puts their national coins into circulation. But none of them will voluntarily decide to accept the decentralization of the financial system and, thus, miss out on one of the three main levers of influence on society, along with military force and popularity.

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