An interesting article appeared in Tech Crunch recently. It argued that governments had effectively lost the ‘fight’ against cryptocurrency, and that the rise of crypto regulation was inevitable. It paid particular attention to blockchain technology in general, pointing out that it was the future of commerce and societal structure regardless of what cryptocurrency critics believe.
The opinion piece also claimed that those nations that try to delay the inevitable will get left behind. The United States came in for particular criticism, but it’s interesting that the Australian Senate rejected a wide-ranging cryptocurrency regulation bill on the same day as the think-piece was published.
Please be aware: the rejection of the bill does not make crypto illegal in Australia. You can still buy, sell and trade crypto in Australia. Moreover, Australia’s current attitude to crypto is what we would call progressive. But regulations help codify existing laws, inviting more institutions into an industry and affording certain protections to investors.
Australia, of course, is not alone in kicking the can down the road when it comes to crypto regulation. Some, like China, believe a hardline approach of an outright ban is possible, although many believe the regulation of crypto in Hong Kong gives Chinese investors access by proxy.
But the majority of advanced economies follow Australia’s blueprint of maintaining a regulatory grey area. This creates a triumvirate of problems, however. First, it pushes innovation off-shore. Second, a lack of regulation means treasuries lose out on taxation. Third, a lack of regulation means fewer protections for users overall.
Crypto Trading: A Comparison with Forex
The current value of global cryptocurrencies is somewhere in the region of $1 trillion (AUD 1.57 trillion). Around $110 billion is traded daily. Compared to the forex (foreign exchange) markets, crypto pales in comparison. Daily trade volumes of forex are measured in trillions of dollars.
Forex is the world’s biggest financial market, and many Australians confidently trade forex daily on regulated online trading platforms. There is a trust in the idea of a central authority in forex that brings in institutional-grade investors and gradual traders alike. Crypto is not there yet, and clear regulation is one of the reasons.
Forex daily trading volume is now over seven TRILLION dollars every trading day. pic.twitter.com/5t5Rlzbhda
— FloridaHERS (@SusanBrownFL) March 8, 2023
The reason we cite forex as a comparison is two-fold. First, it shows the kind of ambitious figures that proponents of the crypto industry believe they can aspire to. But more importantly, it makes a kind of mockery of the criticism of crypto as worthless as a virtual asset.
When those traders trade trillions of dollars in forex each day, they don’t own physical dollars. It’s virtual money (technically speaking) traded via a multitude of different contracts and derivatives. In the trading arena, there’s not much difference between making a short trade on ETH/BTC compared to making one on AUD/USD. The main difference is that the former has no central authority.
The Global Push for Crypto Regulation
In 2023, we see some efforts for international consensus and co-operation on cryptocurrencies. Many believe that governments are lagging behind innovation. As we mentioned, crypto could one day challenge forex as the world’s most important trading market, but, in a sense, that’s also the moot point, and it only looks at crypto as financial products.
Consider what Chainlink is doing in partnership with Swift to facilitate international payments; or how Ticketmaster is using NFTs to fundamentally change the event ticketing industry; or how Bosch is partnering with Fetch to combine AI with and the IoT. These are just a few of the huge crypto-blockchain projects announced recently, and many more will come.
11,500+ Banks are now ready to be blockchain enabled using their current Swift infra with Chainlink CCIP.
Swift Successfully Demonstrates Global Banks Can Transact With Multiple Blockchains Using Chainlink CCIP
— chrisbarrett.x (@ChrisBarrett) September 1, 2023
The point, as such, is that governments are still viewing crypto as financial products only. But crypto tokens are but the tokenised assets of the underlying projects. In a sense, you can view cryptocurrency to be equivalent to buying stocks in a company. Those stocks will rise in value when the products that the company builds become profitable.
Crypto, as a whole, isn’t quite there yet, but many believe that it is just around the corner. As for products, we could point to anything from the fictionalization of online data via the Jasmy crypto project to the creation of a blockchain smartphone by the Solana project. These projects offer real products and services, but they do so in the face of a global regulatory climate that is difficult.
The overall argument we want to make is that regulation would be a win-win situation for governments and the crypto industry. The innovation is happening in spite of regulatory uncertainty, but the inevitable will occur.
Governments can act to harmonize the sector, making it easier to collect capital gains taxes, protect users from bad actors, and allow crypto to grow their economies. It is myopic to stick one’s head in the sand and claim that crypto will go away if you ignore it. It is already too entrenched within the global economy, and it has only displayed a small part of what its impact will be in the coming years.