Nationwide to limit crypto exchange payments
High street lenders impose restrictions on digital currency deals following costly FTX collapse
NATIONWIDE is to launch a fresh cryptocurrency crackdown, as high street lenders tighten controls in the wake of the collapse of FTX.
A Nationwide spokesman told The Daily Telegraph: “To help protect our members from cryptocurrency scams, the society is planning to introduce a daily limit on payments to crypto assets in the near future. We will update members when the changes are brought in.”
Nationwide, the world’s largest building society, with 16m members, has no payment limits on cryptocurrency, although it does limit its “faster payments” service to sums of £10,000.
The planned policy change from Nationwide follows similar recent restrictions introduced at Starling Bank, Santander and Virgin Money.
Starling Bank sent a note to customers this week informing them that they may not be able to withdraw money from cryptocurrency exchanges to their account. Santander has placed a limit of £1,000 per transaction to digital coin exchanges and £3,000 per month, while Virgin Money this week introduced a block on crypto payments to exchanges from personal and savings accounts. Last year, TSB became the first major bank to ban customers from sending any payments to cryptocurrency exchanges. Other major banks have introduced restrictions on sending money to certain offshore cryptocurrency companies, such as Binance, the world’s largest digital coin exchange. Nationwide, Barclays and HSBC all restrict card payments to Binance.
In a recent submission to MPS, TSB said: “In practice, [cryptocurrencies] are not suitable for the vast majority of UK consumers.”
The latest restrictions come after the collapse of FTX, the world’s secondlargest digital coin exchange, founded by 30-year-old Sam Bankman-fried.
FTX, which weeks ago was valued at $32bn (£27bn), filed for bankruptcy protection with an $8bn black hole in its accounts amid claims customer deposits were secretly misused. The company allegedly used customer funds to prop up trading losses at a sister hedge fund.
The failure of FTX has left one million creditors out of pocket, including tens of thousands of people in the UK.
A bankruptcy court in the US heard on Tuesday that FTX spent as much as $300m on luxury property in the Bahamas as accommodation and holiday homes for senior staff.
Separately, new figures show the amount lost to cryptocurrency fraud has tripled over the last three years to hit £226m in 2022. Almost £500m has been lost, according to UK reporting centre Action Fraud.
‘Who would you prefer to lend your money to: a guy called Bankmanfried or Natwest?’
The bankruptcy of the energy trading company Enron in 2001 has long been a byword for staggering financial chicanery and breathtaking mismanagement. So when the guy who was sent to clean up that mess says he is now knee-deep in an even bigger corporate shambles, it’s worth taking note.
John Ray III is the insolvency professional who probably assumed he had ascended his professional Everest 20 years ago. But now he’s rummaging through every spreadsheet at the cryptocurrency exchange FTX trying to figure out where as much as $8bn has upped and disappeared to. When he says he’s seen nothing like it before, you can be pretty sure it’s bad.
The downfall of Sam Bankmanfried, who was able to combine youth, intelligence, arcane expertise, do-gooding and scruffiness in just the right blend to convince celebrities and ageing politicians that he was the next big thing while appearing to have used FTX as his own personal plaything, could very end up being the morality tale of our lifetimes.
But amid the dazzling fortunes, Bermuda mansions, partner swapping and effective altruism lies a central mystery that is in danger of being brushed over: why do cryptocurrency exchanges even exist?
One of the main supposed benefits of cryptocurrencies is that they provide financial tools for those that don’t trust banks or the governments that regulate them. Such a position might sound like the preserve of cranks but there are, in fairness, legitimate reasons to be wary of the competence of lenders and, especially in some parts of the world, the motives of their supervisors.
Decentralised finance, or Defi, does what it says on the tin and cuts out the middlemen. If, for example, you own Bitcoin, you will have a public Bitcoin address paired with a private key which you can use to make and receive payments. Which is great right up until the point you forget the key and your Bitcoin is lost forever. It happens. A lot.
Cryptocurrency exchanges, as you might imagine, allow people to trade cryptocurrencies. But they also make it easier to hold them, too. You can open an account with the exchange. Technically you don’t own the Bitcoin, Ether, Dogecoin or whatever. You own a claim on the exchange for the amount they are holding on your behalf.
That’s much more convenient but is also exactly how a deposit of boring old fiat money at a boring old high street lender works. If you have a deposit at a bank, it means the bank owes you money; if you have deposit at a cryptocurrency exchange, it means the cryptocurrency exchange owes you money. Who would you prefer to lend your money to: a guy called Bankmanfried who doesn’t appear to know how to brush his hair or Natwest?
The exchanges also allow you to trade directly on the exchange, which makes them somewhat like brokers. Some even offer leverage. And, as we now know, FTX had what looks like an uncomfortably cosy relationship with its trading arm Alameda Research – a set-up with echoes of the old proprietary trading desks at big investment banks.
As Defi grew and cryptocurrencies soared in value it attracted more speculators who were less concerned with philosophical underpinnings of the technology than they were in making money. The result has been less emphasis on the “De” and more on the “Fi” and system that grew to resemble that which it sought to disintermediate.
Now we appear to be seeing the whole edifice collapse under the weight of its own contradictions. So, if Defi is beginning to look like traditional finance and smell like traditional finance, should it be regulated like traditional finance?
Yes, according to Sir Jon Cunliffe. In a speech on Monday, the deputy governor of the Bank of England argued that crypto exchanges should be more tightly regulated before they become a risk to the financial system. He specifically cited the fact that the likes of FTX bundle together services that traditional financial institutions must keep separate.
Michael Barr, the US Federal Reserve’s vice-chairman of supervision, and Gary Gensler, the head of the Securities and Exchange Commission, have made very similar noises on the other side of the Atlantic in recent days. The collapse of FTX is the kind of event that leads to demands for something to be done: increased regulation is something, ergo it should be done. Such compulsions would best be resisted. It pays to be mindful that thousands of retail investors have in some cases lost huge amounts of money. It’s possible there may need to be small tweaks to ensure consumers are better protected. However, FTX’S implosion serves as the best possible warning that these are not assets suitable for “widows and orphans”.
The key issue here is whether the ructions in the cryptosphere pose a systemic risk that threatens wider financial stability. Fingers crossed, but so far the signs are good. One of the world’s largest cryptocurrency exchanges has, to all intents and purposes, instantly vaporised. Some other crypto firms are suffering in the fallout. The value of most cryptocurrencies has taken a hit. But the contagion appears to be contained.
If, as seems possible, a fraud may have been perpetrated, the miscreants can be prosecuted under existing laws. What’s more, there’s a danger tighter regulation would confer legitimacy that, on the face of it, isn’t warranted. Far better to, in the words of business school professors Stephen Cecchetti and Kim Schoenholtz: “Just let crypto burn.”
Crypto evangelists have, in fairness, long been aware of what Vitalik Buterin, one of the co-founders of Ethereum, calls the “blockchain trilemma”. Cryptocurrencies aim to be decentralised, scalable and secure. The issue is that you can only have two of those attributes at once.
The situation with FTX isn’t directly analogous but the principle is instructive. Bankman-fried appears to have focused on just one part of the triumvirate: scale. Both decentralisation and security were sadly lacking.