Stepping Up Crypto Regulation Efforts – A Positive Sign?
What would Satoshi Nakamoto think? (Or could be thinking.) After all, the anonymous creator (or creators) of Bitcoin envisioned the world’s first digital currency network as a peer-to-peer electronic cash system that provided a way for people to transfer assets without the need for a third party, such as a bank.
Did Nakomoto imagine that digital currencies – like traditional “fiat” or paper currencies –would come under government regulation? Whether or not, we’ll never know. But what we do know is, regulation is coming. And it may be coming fast.
Around the globe, governments have stepped up their efforts to reign in the ever-growing digital currency industry, which includes coin companies, crypto exchanges, mining operations, and investment entities. Governments warn of scams that illegal activity that have – and can – occur in this nascent technological network. But when it comes to regulation, there’s another side to the digital coin: revenue lost by governments as more people embrace, own, and use digital currencies to buy goods and services.
Let’s take Europe, for example. A report just released by Chainanalysis shows that Europe is the home of the world’s largest crypto economy. “Central, Northern, & Western Europe (CNWE) has the biggest cryptocurrency economy in the world, receiving over $1 trillion worth of cryptocurrency over the last year, which represents 25% of global activity,” the blockchain data platform said. “Having ranked second last year, CNWE’s new position in the top spot is the result of tremendous growth starting in July 2020, combined with a relative decline in activity in Eastern Asia.”
The European Union, which has been working to wrap its arms around the crypto industry, is treading lightly in the crypto regulation area as it works to develop a framework with balance.
After announcing a new “travel” rule that would require companies handling crypto assets to gather personal information, the European Commission, which oversees the industry, said “These proposals have been designed to find the right balance between addressing these threats and complying with international standards while not creating excessive regulatory burden on the industry," the European Commission said. "On the contrary, these proposals will help the EU crypto-asset industry develop, as it will benefit from an updated, harmonised legal framework across the EU."
In China, the current approach to crypto is much simpler. Once home to the largest crypto mining industry in the world, the government announced in September that digital currencies, and all businesses that surround it, are illegal. Trading crypto has been banned in China since 2019. However, the Chinese continued to purchase it on exchanges.
“China rattled financial markets last week by announcing that all crypto-related transactions will be considered illegal, echoing less definitive exclusions dating back to 2013 that cracked down on initial coin offerings, crypto exchanges and cryptocurrency mining — in which it had become the world’s leader, “Bloomberg reported. “Instead, the Chinese government aims to unleash its own cryptocurrency.”
What prompted the move?
“It’s not that governments like China are banning because they necessarily expect the technology to fail,” Bloomberg said. “It’s that they want to be in charge of an experiment with potentially trillions of dollars in play.”
In the U.S., crypto regulation has now reached the Capitol, where provisions around digital currency are rolled into the $1 Trillion Infrastructure Bill which may be voted on this week. Crypto lobbyists have been furiously working to block the provisions that would create a crypto tax which could raise an estimated $28 billion. The bill also includes language that would define the term “broker.”
“The bill mandates that brokers report users' names, addresses, and trading activities to the Internal Revenue Service,” YahooFinance reported. “Cryptocurrency advocates fear that miners and software developers might be considered brokers under the bill's definition, forcing them to supply the IRS with the information they don't have access to.”
In addition to the provisions in the bill, the U.S. Federal Reserve is expected to release in October an interagency report and recommendations on managing digital currencies.
So, will regulation help or harm the digital currency universe? Larry Summers, a former U.S. Secretary of the Treasury, and chief economist at the World Bank, said he thinks regulation is always necessary in times of innovation.
“The truth is that we wouldn’t have a viable airplane industry if we weren’t regulating airline safety,” he told BloombergTV. “We wouldn’t have the transportation system we do if we didn’t regulate automobile safety.”
And while he remains cautious about digital currency, he sees value in what Nakomoto started.
“I think the crypto community needs to recognize that and needs to work cooperatively with governments and if they do that…I think that this innovation can be one of the most important innovations of this period.”
Joyce Pavia Hanson