This past weekend, a certain someone went on a certain Saturday night comedy show, and made an offhand, derisive remark about a certain cryptocurrency. The value plummeted about 30 percent.
That was Elon Musk, of course, on Saturday Night Live, where he called Dogecoin – which he’d been touting for a while through social media – a “hustle.”
Read into that comment what you will, but as the old saying goes, inside every joke lies a kernel of truth. At least some of the crypto universe is tied to hustling, even while proponents strive in earnest to create tokens and ecosystems that will represent a sidestep from the traditional financial system that is governed by central banking.
Whatever your view on Dogecoin and bitcoin and others might be, wild swings in pricing – where coins can move tens of percentage points a day – and headlines blaring news of fraud (in Turkey, a crypto exchange has just collapsed, taking billions of dollars of victims’ holdings) point to increased regulatory scrutiny on a global scale.
Here in the U.S., a new administration has come to Capitol Hill, and with that a changing of the guard at the Securities and Exchange Commission (SEC). Last week, Gary Gensler, who recently took the reins at the SEC, told CNBC that there is a need to beef up investor protections when it comes to trading bitcoin and other digital coins.
Gensler noted that bitcoin represents “a digital, scarce store of value, but [is] highly volatile,” referring to bitcoin specifically. “And there’s investors who want to trade that, and trade that for its volatility, in some cases just because it is a lower correlation with other markets. I think we need greater investor protection there.”
He also added that “to the extent that something is a security, the SEC has a lot of authority. And a lot of crypto tokens — I won’t call them cryptocurrencies for this moment — are indeed securities.”
Herein lies a nod to the existential question at the heart of the crypto debate: whether these tokens are securities or currencies. The SEC, as has been reported, filed suit against Ripple over its XRP cryptocurrency. The Commission has charged that Ripple held a $1.3 billion unregistered securities offering, naming CEO Brad Garlinghouse and Co-founder Chris Larsen in the suit. Ripple has countered that XRP is indeed a currency, and need not be registered through the SEC for the offering.
If the legal process determines that XRP operates as a security rather than as a currency, we contend that the “ripple effect” (no pun intended) may be that cryptos’ bid to become a de-facto currency to rival the banking system, at least here in the U.S., may be truncated a bit. Holders would have to pay capital gains on their holdings, and may face restrictions on those holdings.
Congress, not surprisingly, is getting involved, too. As reported last month, the “Eliminate Barriers to Innovation Act,” which passed the U.S. House of Representatives, would establish a working group with members from the SEC, the Commodity Futures Trading Commission, and financial services and FinTech firms. The group would then make recommendations aimed at improving regulation of cryptos.
Assets – and Some Outright Bans
Around the globe, depending on where you look, cryptos are embraced or rejected. In a smattering of examples showing how wide-ranging the approach can be: Switzerland has said cryptos are assets, and has placed cryptos and platforms within the oversight of anti-money laundering (AML) regulations. The European Union has introduced legislation that would seek to regulate cryptos across the 27-member bloc, with a focus on combating money laundering and terrorist financing.
Then there’s the other side of the (crypto) coin. Some countries, such as Bangladesh, have made crypto trading illegal. In China, cryptos are not recognized as legal tender for retail or other payments (though they are not banned outright). That’s an important distinction, and it paves the way for digital fiat to be recognized as the “official” choice of sorts, to act as a digital alternative to cash.
The Wild West, it seems, may get tamed a bit…
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