Oonagh McDonald on Cryptocurrencies

Bitcoin burst on the scene in 2009 in the aftermath of the financial crisis when trust in the Federal Reserve and financial institutions was at an all-time low. It appeared to offer a new kind of payment without any intermediaries—a new currency. Looking back over the decade or more, has Bitcoin fulfilled its promises? Cryptocurrencies: Money, Trust and Regulation explains its underlying technology and how that technology can easily be used to enable the transfer of large sums of money pseudonymously. It spells out who takes advantage of that and why.

Too Volatile: Speculation Only

Cryptocurrency has become an extremely volatile investment, swinging between $68,991 in November 2021 and then dropping to $16,441.98 by November 2022. Bitcoin became far too volatile to function as a currency. It is unrelated to anything in the real world. Its value depends merely on sentiment. But some people see only the highs and the prospects of becoming overnight millionaires. The story of their misfortunes and the reasons for them is told in this book.

Ending Volatility with Stable Coins

Thousands of “alt coins” were offered to the public via initial coin offerings (ICOs),  in the Wild West period of crypto history, which peaked from 2017 to 2018. Companies offered tokens or coins to the public through White Papers on their websites to fund projects that would benefit those who bought the coins. Apart from incomprehensible technological descriptions of the “project,” little information was offered to investors, quite unlike the initial public offerings required by the Securities and Exchange Commission and regulators in other countries. Once again, investors, often motivated by that powerful force, the fear of missing out (FOMO), put their savings into these risky investments and lost.

But among the alt coins a new breed emerged, stable coins, designed to end volatility by linking their value to gold or platinum or, more often, to a fiat currency, usually pegged to $1 USD (or the pound sterling, Euro, or yen), or an algorithm designed to regulate the supply and maintain parity with fiat currencies.

Cryptocurrencies covers the way in which stable coins have worked out and their lingering paradoxes.

A Global Currency: Libra, Later Called Diem

Libra was Facebook’s great idea, announced in June 2019. But it never came to fruition for a number of reasons. It is important to understand why it failed. Of course, with over two billion subscribers to Facebook around the world, the potential for Libra to undermine existing fiat currencies was alarming. Libra failed to gain the necessary license as a payment system in Switzerland in May 2021. By then the name had been changed to Diem. A partnership with Silvergate Capital Corp in May 2021 was announced as part of its strategic shift to the U.S. for distribution of its stable coins. That failed as well. What is more important than the history of that failure is an analysis of the reasons for it and what they tell us about money

A Slow Response from Regulators Around the World

The recent, more dramatic failures in the crypto world show that the regulators have been unable to protect consumers of crypto assets and currencies, many of whom have lost life savings. The crypto world protests that regulation would stifle innovation and curb their desire to provide quicker and cheaper money transfers  for the benefit of those sending remittances back home. Politicians have too often believed these claims, but should they have? The chapters of this book examine the problems of defining cryptos and determining the right approach to regulation and supervision of new technology. The book also proffers an approach to regulation of stable coins and approves the EU’s Markets in Crypto-Assets, a regulation that, although it puts the EU ahead, does not come into full force until 2024.

Central Bank Digital Currencies

As their response to the rapid growth of the crypto world-at least until 2022, central banks began work on their own digital currencies—a work in progress for all the leading central banks. Such developments are appropriate to wholesale markets, but should retail consumers have access to central bank money? If they are given access, what are the implications of that  for central banks and for commercial banks? Cryptocurrencies provides the answers to these vital questions.


The year 2022 saw the “second crypto winter,” a term chosen to suggest that spring is not far behind. It has not arrived yet. The paperback edition explores the reasons for the collapse of Terra UST and Luna, Celsius, Voyager Digital Assets, Three Arrows Capital, and the FTX bankruptcy. What emerges is the interconnectedness of crypto companies creating a “house of cards”: if one company fails, so do the others in a crypto ecosystem. Thus far the effects on the traditional banking sector have been limited because most but not all banks have limited their relationships with the crypto world. The effects on the crypto world have yet to fully emerge. The epilogue is not yet an epitaph.

Oonagh McDonald CBE is an international expert in financial regulation and the author of Cryptocurrencies: Money, Trust and Regulation.

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