The growing popularity of cryptocurrencies is reaching a point that could make governments and central banks uncomfortable. The voices calling for a regulation of this market are growing among politicians, authorities, central bankers or economists .
This regulation is intended to protect investors who trade with cryptocurrencies, but above all to preserve the monopoly on the control of money that public authorities (governments and central banks) enjoy today, say Detusche Bank in a new work on cryptocurrencies and your future.
The use of bitcoin, ethereum, and other cryptocurrencies is spreading . Although for now speculation or illegal activities continue to be the predominant activities underlying the use of cryptocurrencies, more and more people or companies are looking to crypto and their networks for new forms of payment, financing or even money. make contracts (the ethereum network is famous for its usefulness for smart contracts ).
The last straw has been the acceptance of bitcoin as legal tender in El Salvador, according to economists at Deutsche Bank.
“Bitcoin, along with other crypto assets, has crossed the threshold of widespread use and can no longer be ignored any longer … As cryptocurrencies begin to seriously compete with mainstream currencies and fiat currencies, regulators and lawmakers will take action. energetic “, assure the experts of the German bank.
Deutsche Bank: “The growth of crypto could lead to its demise. Cryptocurrencies increasingly pose a threat to monetary and financial stability, and central banks and governments are unlikely to give up their money monopolies.”
This report by Deutsche Bank comes to light just after the Basel Committee on Banking Supervision has launched a public consultation in which the body proposes that banks face stricter capital requirements when dealing with bitcoin and other crypto assets.
Specifically, the proposal is to divide digital assets into two groups, placing bitcoin and other cryptocurrencies in the one with the highest risk. Based on this, any asset of this group that is held in the portfolio will receive a risk weight of 1,250% , the highest contemplated in Basel, usually used for doubtful assets. In practice, this means that a bank would need a dollar of capital for every dollar of bitcoin, all based on a minimum capital requirement of 8%.
Although some received this proposal as a kind of baptism of bitcoin and other digital currencies in the banking world, the voices that warned that these stricter requirements will dissuade entities from operating with cryptocurrencies soon multiplied .
China and the US will regulate
On the other hand, both China and the US have reaffirmed their willingness to regulate crypto assets. We hope that this year the rules of the game will change; Next year, most advanced economies will establish a solid framework.
From DB they believe that this represents the end of the beginning for bitcoin (not the beginning of the end), that is, cryptocurrencies will have to face a regulation that could erode some or more of the characteristics (absolute anonymity, ease of evasion tax …) that make them so attractive to certain groups. Without those attractions, perhaps the price that investors give to bitcoin will be different from the current one, which is around $ 37,000 (it reached $ 64,000 weeks ago ).
“Governments around the world have fragmented approaches to regulating bitcoin and other cryptocurrencies. Some countries, like El Savaldor, have allowed bitcoin to become legal tender . To paraphrase Neil Armstrong, ‘that’s a small step to El Salvador , but a big step for bitcoin ‘…
El Salvador’s decision paves the way for other emerging economies to take similar actions. This is especially true for economies suffering from instability and heavy dependence on the US dollar. ” Deutsche Bank experts say.
But the big countries will try at all costs to prevent cryptocurrencies from overshadowing the currencies that today dominate the monetary system. “Most G20 countries have crypto assets on their regular agenda. These nations do not want to allow private cryptocurrencies to compete with government-backed fiat currencies. In terms of regulatory measures, we expect 2021 to change the rules of the game. and that by 2022 most advanced economies have a solid regulatory framework for crypto assets. “
Although most of the yearnings for more regulation of cryptocurrencies by the authorities remain for the moment in words and not in deeds, the message seems to be quite clear. The spearhead may become the US under the new Administration headed by Joe Biden. With the arrival of the Democrat to the White House, the US financial authorities are preparing to assume a more active role in regulating this market.
The first indication of this increased concern is the appointment a few weeks ago of Michael Hsu as acting head of the Office of the Comptroller of the Currency (OCC), the government agency charged with carrying out a control function in this area.
The fact that the Secretary of the Treasury, Janet Yellen, has opted for Hsu, “a career public servant and a grassroots banking supervisor”, already sends a message of rupture with the Trump Administration, not so vigilant with cryptocurrencies. One of his first decisions by Hsu at the head of the OCC has been to review the Trump Administration’s decision to grant national bank letters to companies that provide cryptocurrency custody services.
Why the obsession with regular?
First, to prevent cryptocurrencies from endangering the dominance, today public authorities exercise over the monetary system, money and monetary policy. But on the other hand, from DB they also believe that with more than five thousand (very volatile) cryptocurrencies in circulation, consumers will have difficulty navigating these non-transparent markets.
Crime categories with cryptocurrencies in the background
Furthermore, “some cryptocurrencies are used by terrorists for criminal activities, by hackers, scammers. Activity on the Darknet and ransomware has grown steadily since 2019. In 2020, ransomware schemes increased by more than 30%.
These Scams, which often use cryptocurrencies, remain the largest source of illicit activity in the world. Scammers received almost 2.5 billion dollars in 2020, “they argue from Deutsche Bank.
“For governments and central banks, which are often viewed as lenders of last resort, cryptocurrencies pose a systemic risk … With a market capitalization of nearly two trillion dollars, including all cryptocurrencies, crypto assets have reached a point where they can no longer be ignored. This growth, however, could lead to their demise.
Cryptocurrencies increasingly pose a threat to monetary and financial stability, and central banks and governments are unlikely to give up their money monopolies. So as bitcoin and other private cryptocurrencies begin to seriously compete with the fiat currencies of governments, regulators and legislators will take stronger action, “the authors of the report say.