A parliamentary report into the risks and benefits of cryptocurrency will be released next month and provide a building block for future legislation

For several weeks during the height of the pandemic financial bubble in 2021, Parliament’s finance and expenditure committee was focused on an inquiry into cryptocurrencies. 

This was still in the era of ultra-low interest rates, when people said a bitcoin would soon be worth US$1 million and were paying over $500,000 to purchase pictures of cartoon monkeys. 

Things have changed a lot since then. Bitcoin has halved in value, one of the largest crypto exchanges imploded, and those cartoon monkey non-fungible tokens (NFTs) are now selling for less than $60,000. 

However, crypto hasn’t disappeared altogether. Some would even argue it has proved its resilience and staying power throughout myriad crises.  

But much of the hype has disappeared, which may explain why the finance and expenditure committee has put its inquiry report on the backburner. 

In an email, Finance and Expenditure Committee (FEC) chair Ingrid Leary said the report had been delayed due to a heavy workload and some illness-related absences. 

A first draft is now due at the end of July and will be finalized in August, she said.  

The committee was previously chaired by Duncan Webb and then Barbara Edmonds before they were individually promoted in June 2022 and January this year, respectively. 

It has been busy revising the Deposit Takers Bill, which passed its third reading last month, and working on tax principals and affordable water reform legislation.

All are more urgent concerns than the cryptocurrencies inquiry, which was primarily a fact-finding mission with no legislation associated with it. 

The terms of reference looked at the nature, benefits and risks of cryptocurrencies, how they are created and traded, and the environmental impact of ‘mining’ them.

It also inquired into whether they pose a risk to the monetary system or financial stability and what tax implications they might have. 

The International Monetary Fund released a report this week which said policymakers were struggling to accommodate crypto in tax systems not designed to handle them.

“Regulators face a daunting task in identifying and striking a balance between enabling innovation while securing financial stability and investor protection,” it said. 

“Though its importance will differ, that task will remain whatever the future holds for crypto: whether crypto withers or blossoms, the tax system still needs to deal with it”.

The Reserve Bank has also been looking at cryptocurrencies and last week released a summary of submissions it received during its inquiry. 

Ian Woolford, director of money and cash, said it agreed that no specific regulation was required right now, only “increased vigilance”. 

“The submissions reinforce our view that there are significant risks and opportunities from stablecoins and other private money innovations, but also significant uncertainties about how the sector will develop and where the optimal balance will lie”. 

Issues raised by crypto assets and other innovations did not fall neatly within agency boundaries, he said. 

The Financial Markets Authority declined to make any recommendations to parliament about cryptocurrency regulation during the FEC inquiry. 

Liam Mason, the regulator’s general consul, said it did regulate the use of crypto in financial products but more fundamental questions were outside its field of expertise. 

However, the FMA does appear to be paying more attention to crypto regulation. For example, it issued a stop order to a crypto-trading multi-level marketing group this week.

It also has hired a former Binance executive, Daniel Trinder, who was responsible for government relations and policy in Europe, Middle East, and North Africa. 

While Trinder’s role is not specifically related to cryptocurrency regulation, he will bring expertise in the sector that can be hard to come by.