In February, the UK government requested feedback on its proposals for crypto asset regulation. Hashdex responded to the consultation with a focus on our experience as a global crypto investment manager.
The proposal is a step-forward in recognising the crypto industry as the relevant market that it has become. This recognition helps crypto’s development and will improve public trust in the industry. Following is a summary of our key points made in response to the consultation.
Advising and managing crypto assets should fall under the same regulations as traditional finance, as they pose the same risks.
Crypto assets should be available to retail investors on ETF, ETN or Funds wrappers, and regulated by the FCA, like other financial products.
Portfolio management activities connected to crypto should be prioritized for regulation, as consumers already access such exposures through unregulated or loose means.
Traditional asset management firms should be allowed to invest in crypto and offer exposure to clients through regulated securities such as ETFs, ETNs, and mutual funds.
Regulation should remain technology neutral, and regulators should not adjudicate which technological developments offer markets the most benefit.
Staking activities should have clearer regulatory requirements, bringing more security and clarity to investors, especially regarding the tax treatment.
The UK’s prioritisation approach is understandable given the broadness of the crypto universe, but it is key that the regulator tackles the most urgent issues first and keeps the regulation in a constant state of improvement and update. Our view is that the cryptoasset investment advice and portfolio management should be highly prioritized and addressed as soon as possible.
Hashdex also understands that portfolio management activities connected to crypto should be regulated by the existing regulatory framework for traditional finance. While these activities provide exposure to crypto, this is done through traditional financial products such as ETFs, ETPs, and mutual funds. Therefore, it should be regulated as such, recognizing crypto assets as another asset class that investors can access through such regulated products’ structures.
We believe the government’s proactive approach in regulating crypto portfolio management activities should be prioritised in Phase 1 of the regulation. It is important to note that there is a massive scale of cryptocurrency adoption and awareness—recent studies show that 10% of British adults have personally bought crypto, while 20% know someone who has bought crypto assets. This is mostly being done through unregulated products and providers, such as crypto exchanges that are subject to little or no regulation. The approval of traditional products with exposure to crypto will not only help the development of the industry, but also provide a safer environment for investors, especially retail investors. This has proven to be true in other jurisdictions that have adopted this approach, like the EU with crypto ETPs, the US, as well as Canada and Brazil with their crypto ETFs.
Hashdex’s take is that investing in crypto through regulated products is no different from investing in any other asset class. Advisors are already required to understand complex and products and be able to explain it to their clients.
Finally, when it comes to the mining and validation processes, Hashdex understands that the service providers, such as delegated validators, should be regulated as crypto-asset service providers (CASPs), and that there should be more clarity on the tax treatment of staking rewards.
For more on our perspective on crypto regulation, please see our recent article on the impact of the EU’s new MiCA regulation on investors and this article on our views on global crypto regulation.
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