- Governments love blockchain, but they hate cryptocurrencies
- Penalties for an exchange: complicity with cyberattacks
- A smokescreen to protect control: China bans the asset class again
- The SEC fired a missile at Coinbase (NASDAQ 🙂
- More regulatory attacks aimed at slaying the beast that threatens the status quo
Cryptocurrencies are becoming mainstream assets. More and more companies accept them as a means of payment, financial institutions have begun to allow some percentage of digital currencies for the allocation of portfolios, and a Central American government has adopted the leading cryptocurrency as its national currency.
Its proponents claim that the cryptocurrency revolution is the evolution of financial technology. Opponents say digital currencies have zero intrinsic value and are most useful for those looking to break rules, regulations, and laws. Warren Buffett has called it and other cryptocurrencies “worthless hoax,” “financial rat poison squared,” and said they are “basically worthless.”
His partner, Charlie Munger, went even further, saying that Bitcoin and other cryptocurrencies are “disgusting and contrary to the interests of civilization.”
By contrast, Jack Dorsey, co-founder of Twitter (NYSE 🙂 and CEO of Square (NYSE :), called them the currency of the internet. In an ironically witty comment, Elon Musk of Tesla (NASDAQ 🙂 revealed his feelings about cryptocurrencies when he said:
“It may pump, but I’m not getting rid of assets.”
While support or resistance for cryptocurrencies could be generational, the conflict transcends high-profile comments supporting or rejecting the asset class.
Control of the money supply is a central component of government power. The ideology of the cryptocurrency asset class is libertarian and goes against the financial status quo. Cryptocurrencies return control of governments to a collective market made up of individuals. If cryptocurrencies were to replace fiat currencies, governments would not be able to expand or contract the money supply to expand or contract growth, a substantial tool of power and control.
We have seen the government and regulatory agencies fire some missiles at the asset class in recent weeks. This could be just a start in preventing the asset class from growing beyond its current market capitalization of two trillion dollars.
Governments love blockchain, but they hate cryptocurrencies
There is almost unanimous support for blockchain technology, as financial technology offers speed and efficiency for transaction settlement. Blockchain is the child of Bitcoin or vice versa, which is the chicken and egg dilemma of the cryptocurrency asset class.
Many well-meaning systems and businesses can have controversial or even evil consequences. The pharmaceutical industry saves lives, but abuse and drug addiction have also cost lives.
Governments have embraced blockchain technology, but cryptocurrencies are another story.
One of the roots of political power comes from the control of money. The ability to expand and contract the money supply is a critical government function. The current stimulus that has stabilized the US and global economies during the global pandemic is a perfect example.
Cryptocurrencies are libertarian assets as they remove governments’ control of the money supply. The value of a cryptocurrency is a function of the offers and demands in the market at any given time.
Most cryptocurrencies have fixed supplies. They fly under the radar of governments, monetary authorities and central banks. The rise of the cryptocurrency asset class is a direct ideological challenge to the control and power of governments. Therefore, while governments can support the blockchain, cryptocurrencies are a completely different story.
Penalties for an exchange: complicity with cyberattacks
The alarm bells in the corridors of power around the world likely went off when El Salvador adopted Bitcoin as its national currency in early September. Last week, the U.S. Treasury sanctioned a cryptocurrency exchange for its role in laundering money for ransoms for cyberattacks.
The Treasury alleges that the “Suex” exchange facilitated the transactions of the illicit proceeds of at least eight variants of ransomware. Government attorneys are likely to use rules and regulations that require knowing clients to sanction the exchange.
As many opponents point out, cryptocurrencies are the perfect currencies for nefarious and criminal endeavors. Charlie Munger called them “disgusting.” While the Treasury has prosecuted an exchange for logical abuses, the ideological rationale for the lockdowns is also compelling.
Smoke Screen to Protect Control: China Bans Asset Class Again
I view the growing number of regulatory actions against the cryptocurrency asset class as a coordinated attempt to preserve the status quo. It’s easier to put a regulatory leash on cryptocurrencies before overall market capitalization and acceptance as a medium of exchange grows. The increasing number of sanctions and regulatory actions are nothing more than a smokescreen to maintain the status quo. If digital currencies dominate the markets for years to come, governments will make sure to dominate the cryptocurrencies available for trade and investment.
The bottom line is that the United States, Europe, and all other governments will do their best to maintain control of the money supply. Hedge fund manager Ray Dalio recently said that if Bitcoin is very successful, regulators will “kill it.”
On September 24, in another government move against the asset class, China declared all cryptocurrency transactions illegal.
The SEC fired a missile at Coinbase
The most recent move by the US Treasury is the second regulatory missile in recent weeks. The SEC sent Coinbase Global a notification Wells informing the US-based cryptocurrency exchange that he intends to file an enforcement action to prevent the deployment of COIN’s “Lend” product, which allows clients to lend cryptocurrency tokens for a fee or performance .
The SEC argues that “Lend” securitizes cryptocurrencies, which puts them under the agency’s regulatory umbrella. COIN canceled its plans for the product after receiving the notice.
Gary Gensler is the chairman of the SEC. As head of the CFTC, he allowed contracts to be traded on the CME. During his hiatus from service to U.S. regulatory agencies, President Gensler taught a course in fintech at MIT. Many participants in the cryptocurrency market believed that it would support the asset class at the SEC.
Last week, the SEC chairman said he doesn’t see much long-term viability for cryptocurrencies, comparing them to the era of wild banking in the US, which took place between 1837 and 1863 in the absence of federal banking regulation.
More regulatory attacks to kill the beast that threatens the status quo
El Salvador is a lone wolf that has embraced cryptocurrencies as its national currency. Meanwhile, China has declared them illegal, with severe penalties for those who defy the law.
The United States is using the Treasury, the SEC, and other regulatory agencies to “protect” investors and businesses, but the goal is to protect the government’s control over the money supply.
I anticipate that the number of regulatory stocks and anti-crypto statements will grow with the market capitalization of the asset class. Ray Dalio said it best, as governments can “kill” Bitcoin and other cryptocurrencies.
The number of regulatory missiles is likely to keep coming. The problem is ideology, which goes against the status quo and government power. When fully regulated, cryptocurrencies will no longer return the power of money control to individuals, which is the appeal of many devotees.