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THE wild ride seems to have calmed. Late last year, speculators sent the price of crypto-currencies soaring. The value of bitcoin, the best-known, has fallen by half since then. But the momentum behind all things crypto remains powerful. Bitcoin is still worth seven times what it was just a year ago. In the first quarter of this year, according to CoinDesk, a news service, $6.3bn was raised through initial coin offerings (ICOs), a form of funding in which firms issue digital tokens, more than in all of 2017. Last month the Student Loan Report, a website, found that one in five American students it asked had used part of their loan to join the crypto rush.
No wonder regulators want to exert greater control over the cryptosphere. The chance to raise money via ICOs has attracted as many con men as genuine entrepreneurs. The head of Europol, Europe’s policing agency, has estimated that 3-4% of the region’s criminal proceeds are now laundered through cryptoassets. Plenty in the industry think regulation would help legitimize crypto. Yet cryptoenthusiasts are also right to fear that overzealous regulation, like China’s ban on crypto exchanges and ICOs, could throttle a promising technology. Regulators must find sensible answers to three questions to achieve the right balance: what are crypto-assets? How should day-to-day risks be managed? And what threat do they pose to financial stability?