Many Bitcoin investors have a love-hate relationship with Bitcoin. When it hit an all-time-high of $20,000 in December 2017 compared to $200 in 2015, its investors were flying high. When it tanked earlier this week, partly due to fake news about a South Korea ban on Bitcoin, and sent the alt-coin market off a cliff, people were forecasting doom and gloom and panic-selling. Yet here we are, recovering nicely as people are buying in on great deals.
The continuous growth and increasing popularity of Bitcoin have led to a focus on its regulation and other virtual currencies. Often these regulators ignore the utility of this technology, and their decisions based on economic factors create resistance against its inevitable adoption. There is a significant interest in the blockchain, the technology behind Bitcoin, a secure digital ledger of events that’s finding its way into broader applications in the financial services industry as different companies engage in blockchain initiatives.
Bitcoin investors are now preparing for battle with signs that Washington is pushing for more regulation, forcing its hand against an otherwise healthy free market (case in point: fear regarding South Korean governmental interference was what drove the price of Bitcoin down recently; not its inherent value). Lobbyists are already preparing for battle for and against legislation that put cryptocurrencies under new regulations and methods of taxation. Among them, The Bitcoin Foundation and the Chamber of Digital commerce are among organizations worried about suffocating innovation. The lobbying follows the skyrocketing of Bitcoin past the $19,000 mark to debut on Wall Street together with a new breed of futures contracts.
Topping their targeted list is an upcoming Senate bill that intends to classify digital currency as an instrument of money laundering. This will need the authorities to police over any “suspicious” transactions, leading to the imprisonment of innocent people, unjustified civil asset forfeiture and fines, and maybe catching a few actual bad guys. It’s all part of the War on Crypto and making examples of people like Randall Lord who broke no actual laws.
Citigroup CEO Michael Corbat felt that governments could not take lightly people introducing and disrupting the governments’ abilities to control the market. Among its tools are policing data, raising taxes, legislation against supposed money laundering and Know Your Customer (KYC). As we saw yesterday, this is in direct contrast to the actual market behavior of people and companies like Walmart responding to lower taxes by spending and investing. In the case of Walmart, this translated to giving their employees pay raises and bonuses (notwithstanding their closing of Sam’s Club stores).
While U.S. laws arguably have good intentions in requiring banks to make sure transactions are not used for corruption, bribery, money laundering or financing terrorism, they are seldom effective, and in cases where institutional behavior crashed the economy, the responsible parties were given a bailout that regular people paid for. This is the logic they wish to apply to Bitcoin trading. Llew Claasen, Bitcoin Foundation executive director believes the technological innovation should be allowed to develop without undue interference and overburdening regulations.
A section of the bill coming to the Senate this February is designed to broaden the definition of a financial institution to include redeemers, issuers or anyone trading digital currency (backed by coded scarcity and an immutable ledger on the blockchain for fiat (backed by air, with no cap on printing new money).
At its start, Bitcoin thrived among people who wanted to maintain their relative anonymity, and new privacy coins like Monero are gaining steam for the same reason. Today, Custodial Wallet Providers and Virtual Currency Exchange Providers are generally not regulated at the federal level. With this new legislation on the table, we can expect the hand of government to enforce new laws, to drive up costs and to create a barrier to entry for start-ups to enter this space.