Thursday, 14 October, 2021
The Digital Regulator
China bans; the US doesn’t: Crypto wins
On 24 September 2021, China’s key monetary and financial agencies issued a blanket ban on all crypto transactions and mining. This confirmed and reinforced the May 2021 ban on financial institutions and payment companies providing cryptocurrency-related services that enable cryptocurrency transactions. Similar bans were issued in 2013 and 2017, and there was, more broadly, a relentless effort to suffocate the domestic cryptocurrencies market. The latest ban came days after the securities regulatory commission re-affirmed the work on introducing smart contracts and blockchain-based services to digitise the securities and futures market; it also followed a period of heavy work by the monetary authority that culminated in the release of the e-yuan in 2020. China has always supported the distributed ledger technologies-based applications.
China, the US, and Crypto
News headlines such as China banning cryptocurrencies and the US not banning cryptocurrencies cause movement in the market. The negative impact on bitcoin price on 24 September 2021—when China’s key monetary and financial agencies issued the blanket ban on cryptocurrency transactions and mining—and the positive impact on 1 October 2021—when the US monetary authority confirmed it will not ban cryptocurrencies—are stark reminders. Investors need to appreciate these headlines in a broader context. What follows recasts the recent headlines in such a broader context and endeavours to offer an interpretation.
A broader look at the regulatory stances that have prevailed over time for each of the superpowers, China and the US, shows that Chinese authorities have always distinguished clearly between blockchain technology—which they consistently promoted—and cryptofinance—which they repeatedly attempted to ban. The statement made on 24 September 2021 by Chinese authorities is unsurprising from an historical perspective. The periodic reiteration of the prohibition statements is a stark reminder of the difficulty of practically implementing such statements. Cryptofinance cannot be stopped unless the Internet is shut down or extensively controlled, and the development of DeFi does not make the implementation of bans easier. The US authorities’ ability to deal with cryptofinance has long been hampered by the complex nature of the intricate system of federal and national regulators, which has produced complexity and uncertainty. The intent has, however, never been to prohibit cryptocurrency finance but, rather, to promote sustainable practices. In 2021, the US federal authorities intensified their actions and their collaboration at the analytical level, indicating an intention to introduce a regulatory framework aimed at fostering sustainable cryptofinance practices and, under this condition, eventually mass adoption. The statement made on 1 October 2021 that cryptocurrencies will not be banned, further confirms this stance. Cryptofinance-unfriendly jurisdictions are certainly increasingly a minority from a global perspective, and investors should always weigh headlines from an historical perspective.
Other Noteworthy Developments
The Swiss FINMA issued its first-ever approval for a stock exchange to trade tokens and for a cryptocurrency fund. Thus, the Swiss Crypto Nation solidifies its global primacy.
The US SEC once again postponed decisions on bitcoin ETFs. Nonetheless, an approval seems certain—it is only a matter of when it will be approved.
CBDC’s uninterrupted momentum continued, with important developments from the BIS and several jurisdictions.
Stablecoin Tether had half of its New York Court claims dismissed—an important news event supporting the stability of the cryptocurrencies market.
A relentless adoption of cryptofinance globally, with developments in Ukraine, Italy, Argentina, Colombia, and Dubai.
Markets are often materially influenced by news headlines. On 24 September and 1 October, the bitcoin price reacted markedly to the news that China would ban cryptocurrencies and that the US will not ban cryptocurrencies, respectively. Investors should maintain a longer and global perspective on cryptofinance and trust the following truth and trend: A negligible innovation such as blockchain found its legitimate place within finance in less than 10 years, first in a small but financially important jurisdiction such as Switzerland, then—at an increasing pace—in what is now over 125 jurisdictions and all relevant international regulatory and political bodies. The bottom line is that the jurisdictions that ban cryptofinance altogether are an increasingly small minority and that implementing an outright ban is difficult—as evidenced by the regularly reiterated statements from China regarding its ban over the years. The prevailing momentum that is reinforced significantly by the latest pronouncements and initiatives in the US is one that focuses on integrating cryptocurrency meaningfully into finance keeping in mind sustainability aspects (AML/investor protection).
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