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Regulation is coming for Bitcoin

ReufgeeMoney
Coinmonks

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Bitcoin regulation.
Photo by Joshua Miranda from Pexels

Bitcoin has been on a nice run as of late to say the less. It was trading at ~$10,000 in July 2020 and exploded to $36,000 as of today (Jan 19, 2021). Bitcoin’s Market capitalization currently sits at a whopping $672.6 billion dollars. It is undeniable that Bitcoin’s rising popularity is felt by traders, retail investors, institutional investors and regulators. In this post, I will discuss the rising popularity of Bitcoin, how it is catching the eyes of regulators and my take if this is good or bad.

Rising popularity of Bitcoin

As the market cap of Bitcoin continues to increase, it is drawing a lot interest from institutional investors. According to a recent article by Frank Chaparro titled Big institutions are only interested in Bitcoin, says NYDIG CEO discussed how serious investors are only interested in Bitcoin because it is the largest cryptocurrency by market cap. The CEO, Robert Gutmann said,

“100 out of 100 of the last conversations I’ve had with investors seriously looking to allocate, let’s say over 50 million dollars, 100% of those conversations have been about Bitcoin and 0% of them have been about any other crypto asset.”

In a recent article by Bloomberg, SkyBridge Capital recently entered the Bitcoin scene as they announced a Bitcoin fund targeted to affluent investors. Anthony Scaramucci, Manager at Skybridge Capital said,

“Bitcoin is better at being gold than gold… It’s easier to store, it’s harder to steal, it’s more portable, and so therefore , it’s become the ledger or the storage of the future in terms of the storage of value.”

Lastly, if I haven’t driven my point home yet with Bitcoin’s rising popularity… Elon Musk recently joined the Bitcoin-verse as he nonchalantly chimed in on Bitcoin via Twitter.

With all the attention from wall street and notable CEOs, regulators must not be far behind. Enter the…

Eyes of Regulators

In an article by Robert Stevens, Bitcoin was the 20th biggest asset by Market cap (~$300 billion) back in November 2020. In about two months Bitcoin has more than doubled in market cap. This puts Bitcoin as the 12th largest asset by market capitalization… bigger than companies like Berkshire Hathaway, Samsung, Visa, Johnson & Johnson, JPMorgan and Walmart. Bitcoin is getting too big.

Assets ranked by Market Cap — CompaniesMarketCap.com

Ranking the world’s top assets by market cap, including precious metals, public companies, cryptocurrencies, ETFs

companiesmarketcap.com

Regulatory bodies can no longer ignore Bitcoin and the entrenchment it is gaining in financial world. Most recently, two notable regulators publicly criticized Bitcoin.

On January 13, 2021, the European Central Bank’s (ECB) President Christine Lagarde said in an interview with Reuters describing Bitcoin as “highly speculative asset” and is used in money laundering. Christine calls for global regulation of Bitcoin to close “loopholes” that allows for illicit activities to occur. However, I would also like to point out that Christine Lagarde, The current PRESIDENT of ECB was also convicted of illicit activities back in 2016 over massive government payout. According to the Independent.co,

“IMF managing director Ms Lagarde was suspected of rubber stamping a deal to effectively buy off the business magnate with taxpayers’ money…Civil courts have since quashed the unusually generous award, declared the arbitration process and deal fraudulent, and ordered Mr Tapie to pay the money back.”

So who’s pointing the finger at who ? But anyways…

About a week later, Coindesk reported confirmed Treasury Secretary, Janet Yellen told the Senate Finance Committee that cryptocurrencies are a concern of hers. Yellen then said,

“I think many [cryptocurrencies] are used, at least in transactions sense, mainly for illicit financing and I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels.”

Janet Yellen later walked back her comments and described Bitcoin and other cryptocurrencies as able to provide “potential benefits for the U.S” and that they have the potential to improve the efficiency of the financial system. You can find the article here.

You probably already heard that Bitcoin is used in illicit transaction. This is nothing new! However, according to Bitcoin.com, Morgan Creek Digital partner Anthony Pompliano made a video explaining Bitcoin is “used less often for illicit purposes than any other currency”. Additionally, Chainalysis, a blockchain analysis company that provides data, software, service and research to government and over 50 cybersecurity companies recently released a 2020 criminal activity report. The report shows criminal activity was only 0.34% of all crypto activity, or in $10 billion in transaction volume! The data directly contradicts both Christine Lagarde and Janet Yellen’s recent statements.

Is regulation good or bad?

I know what you are thinking… this has to be bad for Bitcoin Hodl-ers (Hold on for dear Life), right ? Not exactly, it could be good if done correctly. I am in the camp that believes Bitcoin will need regulation for it to become mainstream.

First let’s see what bad regulation of Bitcoin might look like —

Back on December 9, 2020, Coindesk reported then Treasury Secretary, Steve Mnuchin wanted to roll out a “ Know Your Customer ” (KYC) regulation. This KYC regulation would require crypto exchanges to verify identity of self hosted wallets before an exchange of cryptocurrencies can take place. Many, including the Senator of Ohio, Warren Davidson described the proposed rule as an “invasion of user privacy” and can hinder innovation causing the United States to fall behind the rest of the world.

Now lets see what correct regulation might look like —

Simple, taxation of capital gains on Bitcoin is good. The IRS sees Bitcoin as property and is subject to taxation. Now, I don’t like paying tax as much as the next guy but I do believe that if you are profiting from Bitcoin and other cryptocurrencies, then you need to pay some taxes. Tax revenue pays for our roads, highways, social security and medicare (among other things). This generally benefits everyone and I am for it.

Regulating Bitcoin will create more demand and ultimately, adoption. In an article by Coindesk, Why Regulation can Help Bitcoin said,

“By making them a means of paying taxes or closing major financial transactions, it provides legitimacy to the currency. That naturally diffuses knowledge, familiarity and demand for bitcoins across a wider swathe of people, breeding acceptance… This increased demand in turn can help manage the volatile swings that typify bitcoin today.”

Conclusion

I believe to a majority of the population, Bitcoin is a mystery. A lot of family offices, retirement funds and institutions still don’t fully understand it and hence — trust it. Therefore regulations can provide boundaries and a sense of safety to investors, funds and institutions. I do not believe we need to view regulation of Bitcoin as a bad thing. We live in a governed society and there needs to be some rules and regulations that provides safety to the masses. However, I do believe we need to be watchful and ensure that the regulations coming to Bitcoin does not impede on our privacy and our rights. Like I said, if done correctly, regulations could be what opens the flood gates for mass adoption of Bitcoin.

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ReufgeeMoney
Coinmonks

Written by ReufgeeMoney

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Clinical Lab Scientist, Passionate about Stocks and Bitcoin