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Bitcoin, Ripple, Cardano: About the regulation of cryptocurrencies

  • Governments are not fans of cryptocurrencies

  • The US and Europe are likely to work together on crypto regulation

  • Two separate regulatory concepts

  • Taxes come first

  • Global financial war

,,, and other cryptocurrencies have made a sharp comeback from their lows dropped to during the steep correction following the highs in April and May. Bitcoin plunged from $ 65,520 on April 14th to a low of $ 28,800 in late June, representing a loss of over 56%. Ethereum peaked at $ 4,406.50 in mid-May and tumbled to a low of $ 1,697.75 by the end of June, slipping even more sharply by almost 61.5%.

The market capitalization of the entire asset class of over 11,180 digital tokens had more than halved from around 2.5 trillion US dollars.

Even while prices were falling, the speculative craze drew new participants into the asset class every day. On Sunday, August 8, Bitcoin was back above the $ 43,800 mark, while Ethereum was just over $ 3,000 per token. Market capitalization for the entire asset class was nearly $ 1.775 trillion.

Stories of incredible wealth creation from those who had the foresight to turn a $ 1 investment in Bitcoin to five cents in 2010 into over $ 2 million in 2010 are powerful motivators. In addition, technology companies continue to rely on the libertarian form of money, especially Jack Dorsey’s company Square (NYSE :).

At the recent B-Word conference, the CEO of Square and Twitter (NYSE 🙂 called cryptocurrencies the money of the internet. As more companies start accepting tokens for payments, governments are unlikely to just stand idly by.

Governments are not fans of cryptocurrencies

Governments have repeatedly questioned cryptos because of their use by criminals. However, it is money supply control that is paramount in the first place.

Control of money is the most important power factor. Giving up control of the money supply to a libertarian currency reduces the power of the state.

The status quo means that governments can increase or decrease the amount of money at the push of a button. The ideological gap between governments and a cross-border form of money creates a deep rift between the two sides.

Governments embrace blockchain as it represents the technological evolution of finance. The speed and efficiency of financial technology give the sector a broad appeal. However, the digital currencies themselves pose a massive threat to state power.

China seems to be the first government to issue a digital form of its currency, the yuan. In preparation for this, the Chinese cracked down on Bitcoin and other cryptos. It won’t be long before the US and Europe catch up with digital dollars and euros. Washington DC and the EU will most likely follow China’s example to keep control of the money supply and thus control of the financial markets.

The US and Europe are likely to work together on crypto regulation

After 2008, in the wake of the financial market crash, the prerequisites for cross-border regulatory cooperation were created. With the turn to globalism under the Biden administration, regulators in the US, UK and EU are likely to work together to create a regulatory framework for cryptocurrencies.

While they portray this as a regulatory environment to protect investors, traders and the integrity of money, the underlying factor will be the control and maintenance of the monetary status quo.

Two separate regulatory concepts

I expect the fintech industry to split into two regulatory concepts. One includes government-issued digital currencies and could also include so-called “stablecoins” that reflect hard assets.

These will likely be the blue chips, which are less regulated as control remains in the hands of governments, finance ministries, central banks, and monetary agencies.

Cryptocurrencies, on the other hand, could face much higher regulatory hurdles in order to mitigate the threat they pose to established power bases.

Taxes come first

Taxes are one of the most powerful tools of government. One sign that cryptocurrencies are already in the U.S. government’s crosshairs are two competing crypto tax changes in the Senate Infrastructure Act. Taxation is about defining the role of a “broker” in cryptocurrencies.

Ironically, the senators first tried to introduce stricter rules for taxing cryptocurrencies in order to raise funding for the infrastructure bill. the Wyden Toomey Lummis-Application would restrict the “broker” definition in order to exclude miners and validators, hardware and software manufacturers and protocol developers from the designation. The change is intended to prevent the crypto business and market from migrating overseas to less restrictive jurisdictions.

Meanwhile the would Portman-Warner-Sinema– Change request only protect Proof of Work (PoW) miners from the newly proposed reporting requirement. Stake (PoS) developers, operators, validators or liquidity providers would also be subject to reporting requirements here.

Conclusion: Strict taxation will come in whatever form. Tax collection is the single most important tool that governments can use to keep the asset class under control and in control.

Under the pretext of raising funds for infrastructure, the US Treasury Department (IRS) and other government agencies would have the power to control the flow of money with complete transparency. Additionally, cross-border collaboration could be a silver bullet, driving the market away from cryptos towards government-issued digital currencies and stablecoins that reflect the value of regulated assets.

Global financial war

Libertarian ideology shifts power from the state to the individual. Libertarians believe in free markets where prices come from transparent transactions without government interference. Ironically, many believe that libertarianism is a right-wing doctrine.

When it comes to money, libertarians want to curtail the role of government. But socially, libertarianism can also appeal to the political left. Right and left political ideologies advocate different forms of libertarianism.

When it comes to cryptocurrencies, neither governments nor advocates of the emerging asset class will be happy with the outcome. In the US and Europe, the growth of tech companies that created oligarchies is setting the stage for an epic battle over who will control the money supply going forward.

Government officials are on one side, with Jack Dorsey, Teslas (NASDAQ 🙂 Elon Musk, Amazons (NASDAQ 🙂 Jeff Bezos and other titans building a fintech world that threatens to slip out of government control.

Both sides have self-interest. Governments will do whatever it takes to maintain their power. The crypto market and tech companies are trying to give power back to individuals, but also because they will benefit from it.

Conclusion: Regulation is in sight and will likely create a class system in which digital currencies and stablecoins are not treated in the same way as cryptos.

The two competing payment systems could be mutually exclusive, creating a lot of volatility and sparking an epic battle for financial sovereignty. Governments can have the right to taxation, regulation and armies of agents. The technology sector, however, has know-how and skills that go far beyond what the keepers of the status quo can fall back on.

Speculative interest is currently fueling the libertarian asset class, which is why the Chinese regulators have intervened. China is an authoritarian system that makes it easy to suppress anything that is not in the interests of the government.

The US and Europe are likely to try the same. But in social democracies this is far from easy.

Bitcoin futures (monthly)

Bitcoin futures (monthly)

Source: CQG

The monthly chart above shows that the speculative mania is likely to continue. Almost 11,200 cryptocurrencies – and more are coming onto the market every day – are another sign that the asset class is becoming more attractive. Furthermore, the existence of Bitcoin and means that the cat is already out of the bag and the US and Europe will now try to intervene with taxes and regulation from a weakened position.

Many agree that blockchain is the future of the payment system. However, the shape of money is an issue that will continue to fuel controversy in the years to come.

Hasan Sheikh
Hasan, who loves technology and games, is studying Computer Engineering at Delhi JNU. He has been writing technology news since 2016.


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