This week in crypto. Sept 6-12: Regulating crypto industry, NFTs for lobbying and more...
Regulating crypto industry
Crypto in the purest sense does not need regulation: it was born as a decentralized alternative to a highly centralized world, and theoretically it could exist as a system parallel to the traditional economy.
This would be a shame though, for people and businesses can profit hugely from crypto exposure – and they do. As crypto is being weaved more and more into the existent system, an adequate regulation is necessary to avoid legal grey areas and protect crypto-related businesses.
Many countries already define crypto-related notions in their legal texts (many European countries notably), and Ukraine is now one of them: this week its Parliament passed the crypto law, “legalizing” crypto-related businesses. Without this law, Ukrainian law enforcement agencies treated bitcoin and other crypto as a scam, resulting in crypto businesses getting raided.
While acknowledging the existence of a crypto industry, it is important that the regulators also ensure that it has the same access to the banking services as the rest of the economy. Some forward-thinking banks have already integrated crypto, but many of them are still desperately trying to repress it. This week the Australian Senate Committee heard the testimonies of Bitcoin Babe and Aus Merchant – two local exchanges that have been continually denied banking services (91 and 4 times respectively). In case of Bitcoin Babe, its founder was also personally debanked and put on a terrorist list, which caused her relatives to be debanked as well…
The same problem persists in France. Crypto-related businesses are often refused banking services for no reason, even if the crypto provision in the PACTE law reinforces the right of (licensed) crypto companies to a bank account. As in Australia, it’s ultimately the bank’s decision to open or close an account, and AML is used as a universal excuse to shun crypto businesses. In these countries it’s still old money vs new industry… and we all know how it ends. In the meantime, German crypto banking is thriving thanks to banks’ progressive attitude and encouraging regulation (its most popular investment vehicles – the Spezialfonds – are allowed to allocate up to 20% of their portfolios to crypto, 0% tax on crypto gains…)
Over-regulation and over-protection
Unfortunately, regulators often get carried away: the most zealous ones risk to over-regulate a crypto business and eventually push it to relocate, depriving their country of a fast-developing and high added value industry. In this sense the US are playing with fire now: crypto provisions from Biden’s Infrastructure Bill that would put almost impossible reporting obligations on crypto businesses are a good example of over-regulating. As well as the SEC’s attacks on Ripple, Coinbase (their Lend program could be considered a security with no further explanations) and UniSwap (a civil investigation opened).
In Europe things are somewhat calmer, but the general tone isn’t encouraging. This week the European Securities and Markets Authority (ESMA) published a report, which, while calling cryptocurrencies a “trending financial innovation”, noted that they raise investor protection issues because of their volatility and “operating outside of the EU regulatory framework”. ESMA would probably like to have a perfectly still market of EU-only institutions… but this doesn’t interest anyone and it’s not how the finance works.
Volatility is not a problem in itself: you gain if you took the right position, you lose if you took the wrong, and you don’t care if you’re investing long-term. So the regulators should probably let people decide for themselves, because over-protection will have the same result as over-regulation: people will still speculate with risky crypto assets, but they will do it from unregistered platforms instead.
Art and NFT
As regulation problems come at the forefront of crypto industry development, crypto lobbies get busy. A creative solution by Universe, an NFT platform, is now at the disposal of anyone who would like to participate.
Universe launched a series of NFT collectibles called the Lobby Lobsters, with the profits from sales and resales going to a DAO (decentralized autonomous organization) that would vote on the funds’ allocation to crypto lobbies.
What better way to make your voice heard than with funny NFTs? Just like we love it.
Markets
Bitcoin
Demonstrating the volatility that scares the regulators so much, this week Bitcoin flash crased” 15% to below $45k, after having visited the $52’600 level.
Bitcoin celebrated its official recognition in El Salvador that came in force on September 7th and its 700’000th block. At this point 89.5% of all the bitcoins have been mined.
Ethereum
In a similar move to Bitcoin’s, Ethereum price dropped 17% (plunging as low as - 24% at one moment), landing at $3270.
Quote of the week
“We believe Bitcoin has significant upside potential as a form of ‘digital gold’. With gold’s market capitalization greater than $11 trillion, Bitcoin’s current cap close to $600 billion would have a long way to go to catch up. We are early in a continuing adoption curve and Bitcoin will be volatile, but we think the risk-reward is attractive.”
Bill Miller, famous American investor and founder of Miller Opportunity Trust