The UK’s Financial Conduct Authority (FCA) should “take into account” the recent volatility in the cryptocurrency market as it works on the regulatory framework for the industry, said Sarah Pritchard, the agency’s executive director, in an interview with Bloomberg.
She also cited an FCA survey, according to which 69% of respondents under 40 who invested in digital assets erroneously believed they were regulated by the British authorities.
“This really shows that the real issues at stake are those that matter most, both for a well-functioning market and, obviously, for consumer protection,” noted Pritchard.
An FCA spokesperson stressed that people must understand the risks of such investments. She said the Treasury and the financial regulator would study the Terra collapse carefully.
On 8 May the algorithmic stablecoin TerraUSD (UST) lost its peg to the US dollar. This occurred amid outflows from the Anchor protocol as the deposit yield fell to 17.87%.
On 10 May the asset’s price fell below $0.62. The decline continued on 11 May, after which the UST-issued Luna collapsed to $0.30.
In the evening of 15 May another algorithmic stablecoin — DEI of the Deus Finance DAO — lost its peg to the US dollar.
The market reacted to the UST collapse with a fall in Bitcoin. On Thursday 12 May, the price of Bitcoin slid to around $26,700, a level not seen since late 2020. At the time of writing, the first cryptocurrency trades near $28,780 (Binance).
Earlier, the Bank of England published framework principles for shaping the regulatory framework for cryptocurrencies, with an emphasis on future risks to financial stability.
In April the British Treasury announced plans to legalise stablecoins and to issue its own NFTs. This move is intended to signal the country as a crypto-friendly jurisdiction.
Recall, the UK Treasury ruled out the legalisation of algorithmic stablecoins, as they “do not guarantee stability.”
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