By Domenic Carosa, founder and chairman of Banxa
The original vision of cryptocurrency was to build an ecosystem independent of the old financial institutions – one that can thrive and become more inclusive without the need for intermediaries. In short, to democratize finance. But when things go too fast, they don’t always go according to plan.
Crypto prices doubled, tripled, and even quadrupled during this recent bull run, which is not necessarily over yet. Everyone wanted a piece of the new alternative to the stock market, and the global financial system became aware of it. Institutions that had ravaged Bitcoin for years suddenly added digital assets to their balance sheets and introduced cryptocurrencies. This led to further government regulation and, in some cases, reactionary policies. It appears that regulators are still a few years behind market movement. In the US, the EOS and BitMex investigations were either recently completed or are ongoing – yet these companies were the standout features of the 2018 Bull Run. Crypto is moving too fast for market participants and regulators. Or you can’t put the genie back in the bottle.
Although China “forbidden“Using cryptocurrency and mining, the Chinese recently piloted a digital yuan. The Central Bank’s digital currency (CBDC) runs on blockchain, but since it is controlled by the People’s Bank of China, it remains centralized. The government has actively promoted the new currency across Beijing, saying: it intends To distribute 40 million digital yuan (US $ 6.2 million) to Beijing residents so they can spend in digital currency by June 20. Chinese bank workers have quotas for the number of people they will need Register – this introduction will allow China to determine its numbers with certainty. As regulation continues, many Chinese crypto mining companies are relocating overseas. So far 26 companies in Sichuan were closed by the authorities. Anyone who has been involved with crypto for a while knows this game of regulatory “whack-a-mole”.
Instead of looking for ways to incorporate the benefits of blockchain, near-instant money transfers, immutable transaction history, energy efficiency, and control over their own finances, many governments, including the US, are trying to introduce their own CBDCs and prevent a move towards decentralizing currencies. Blockchain is highly secure and records transactions cheaper than traditional data storage technologies. The technology itself offers advantages that must be used. The associated philosophy, exemplified for Bitcoin, is not exactly appetizing for existing political and financial institutions, but the train has left the station.
The world is excitedly watching as China continues its CBDC rollout – an experiment to tame the push toward decentralization that will serve as an example for other governments trying to harness the power of the blockchain in ways they can control.
The newest regulator of the US Security and Exchange Commission agenda was released with no mention of Bitcoin or cryptocurrency. However, SEC chairman Gary Gensler has continuously debated the need to protect investors and regulate crypto exchanges. He even went so far as to urge Congress to pass cryptocurrency laws, adding that cryptocurrency exchanges need more regulation. Another area that analysts believe will be of interest to regulators is stablecoins – as digital representations of government-backed assets, they benefit from the reputation of the currencies they represent. Nobody issues a stablecoin for the Zimbabwe (RTGS) dollar.
In the past few months, the SEC has released 75 crypto-related enforcement and warn investors about funds that trade Bitcoin. Gensler isn’t the only one pushing for more regulations. Federal Reserve Chairman Jerome Powell reiterated his thoughts on the regulation of stablecoins during a testimony before the US House of Representatives Committee on Financial Services, comparing stablecoins to money markets and bank deposits. “If [stablecoins are] will be a significant part of the payments universe – which we think crypto assets won’t be, but stablecoins could be – then we need an adequate regulatory framework, which we honestly don’t have, ”he said.
These developments represent a paradox for cypherpunks and true crypto-believers. On the one hand, they threaten Satoshi Nakomoto’s vision of a world in which decentralized money flourishes free of state interference. On the other hand, the fact that the world’s largest economies appear to be scared of cryptocurrency is evidence of its long-term viability. It’s a new world and there’s a new currency to go with it.
Bitcoin will officially be a legal tender in El Salvador alongside the US dollar from September 7, making this Latin American nation the first country to introduce cryptocurrency as a dual national currency. President Nayib Bukele has insisted that the use of cryptocurrency is optional and citizens can easily transfer Bitcoin payments in dollars. Bukele hopes Bitcoin will help counter the country’s low bank penetration rate by 29% and cut referral costs, he said. Athena Bitcoin invested more than $ 1 million and plans to install 1,500 ATMs across El Salvador, particularly to help those who send and receive money transfers from abroad. The ATMs are used to buy Bitcoin or sell it for cash.
There is a growing urge for crypto support in South American countries, with various lawmakers supporting and planning bills for review in front of their governments’ lower houses. Since the decision in El Salvador, Politician Argentina, Paraguay, Brazil and Panama all went on Twitter to confirm the decision. Originally there was speculation that Paraguay would follow suit, although a new bill shows a stark contrast. That Bill “The purpose of this bill is to provide financial and tax legal certainty in companies that result from the production and commercialization of virtual assets.” It will also regulate mining and trading on exchanges to make currencies more valid within the country to rent.
Simultaneously with these positive steps in the advancement of digital assets, the World Bank said it was “unable to help El Salvador adopt Bitcoin,” while the IMF spokesman said, “The introduction of Bitcoin as legal tender increases one A number of macroeconomic, financial and legal issues that require very careful analysis … We are closely monitoring developments and will continue our consultations with the authorities. “Crypto Twitter hailed the announcement as the government’s finally correct response to the Bitcoin phenomenon.
Digital assets can be compared to other unregulated markets that have tried to shift towards legitimacy, a recent example of which is the marijuana industry. When cannabis was legalized in many US states, pharmacies for moms and pops opened everywhere, especially in big cities. As pharmacies grew in popularity, the same monopoly and size issues began to emerge seen in other sectors, from grocery stores to online stores. The mom and pop shops and minorities are being displaced by corporations that can play the “Economies of Scale Game” more effectively. We see this in cryptocurrencies and exchanges around the world. While Bitcoin, Binance, Ether and Coinbase are practically a household name for many who delve into the cryptosphere, many others have come and gone without a look.
As blockchain-based startups continue to thrive, only companies that have the maturity and the ability to negotiate the regulatory issues related to a solid government position on digital assets will survive. Many governments will watch China’s CBDC launch with interest, but knowing that reaching the same level of buy-in as China will be challenging in most democracies. In Australia, the reserve bank stated that the country “cashless“By 2025, the global pandemic has helped accelerate this. Whether blockchain-based or centralized, digital currencies are the future.
Ironically, the ship, intended to be the savior of the financially hopeless, can become a tool of the financial giants if we are not careful. With a view to the next bull run or the continuation of the last one, proponents and key supporters of real decentralization must be vigilant and steer the ship through the regulatory hurdles and political attacks into the decentralized promised land that Satoshi envisions.
About the author
Domenic Carosa is the founder and chairman of Banxa. Domenic is a technology pioneer who has founded or invested in more than 50 private and public technology companies over the past 25 years. He holds a Master of Entrepreneurship and Innovation (MEI) from Swinburne University Australia.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.