Cryptocurrencies are still out of the control of governments and central banks. Their meteoric rise in the United States in recent years, and above all the risk associated with their volatile nature and the possibility of being manipulated by acts of piracy, money laundering, or errors in the absence of a legal framework, has prompted US financial authorities to consider regulating the industry.
Treasury Secretary Janet Yellen called for the crypto industry to be subject to the same rules and federal regulatory oversight as the traditional financial system. Such a call suggests an answer to the following question: what is a cryptocurrency and why do financial authorities want to regulate digital assets at any cost? It looks like the days of the free market, where crypto moves without limits, are coming to an end. Last March, President Joe Biden signed an executive order directing U.S. federal agencies to implement policies to regulate digital assets such as cryptocurrencies.
Speaking at a recent conference at the American University in Washington, the treasury secretary pledged to work with the White House and other agencies over the next six months to come up with recommendations to regulate these assets.
In this new reality, many still don’t know what cryptocurrencies are, let alone why the government decides to bring them into the realm of regulation. According to Maisam Behravesh, the founder of a crypto company in Sweden, a digital asset is “anything that has value, is produced and stored digitally or on the Internet using blockchain technology and computer work.”
In a statement to MAP, he explains that digital assets can include “cryptocurrencies or coins and tokens that are decentralized and not subject to any control by the government or the regulator, the central bank.” They can also refer to government-issued and controlled digital currencies (i.e., these cryptocurrencies currently account for more than $2 trillion in the global economy, Behravesh says, noting that the potential for disruption becomes huge in this case, especially given that the short history of these currencies on this day was marked by extreme volatility, with large swings up and down.
“With such a huge market capitalization scattered across national territories, governments are trying to minimize the destabilizing impact on their respective national economies and capitalize on a new source of decentralized wealth and value 24/7,” he continues.
For Roseanne Myers, CEO of a California technology company and crypto mining expert, “Cryptocurrency and the technology behind it can represent both a source of disruption and an opportunity for states and national banks. “Cryptocurrency is in its infancy,” she says, noting that “most people don’t realize that there are many opportunities to participate beyond investing. Every day, hundreds of projects emerge from all over the world and have the potential for exponential growth.”
Myers goes on to note that one aspect of cryptocurrency is the ability to be “mined” on the Internet. “Mining is a security and verification mechanism for blockchains,” she says. “This is how new tokens like bitcoin are created and transactions are securely authenticated so that the network can operate and grow. For proof-of-work blockchains, this is done by using powerful computers that run non-stop, solving complex mathematical puzzles to record and secure new transactions,” the expert clarifies. However, she notes that “not all projects depend on mining and not all of them are successful,” adding that mining underlies most of the existing infrastructure, as it validates and secures the blockchain.
“It’s a great way to generate relatively passive income by supporting the networks.” The expert also notes that 1.7 billion adults worldwide “are unbanked, which means they cannot access the financial systems to store, borrow or invest their money. They cannot protect or increase wealth.” She suggests that cryptocurrency “changes all that because it allows anyone with an internet connection to access financial services.” The scale of the impact is huge, notes this follower of these assets, pointing out that just recently Ukraine raised more than $60 million from private donors accepting donations in cryptocurrencies.
“Key rules and infrastructure are maturing, which means the question is no longer whether cryptocurrency will exist, but how it will be controlled and taxed,” the expert says. Recently, the United States became the mining capital of the world after China placed companies operating in the sector on its list of prohibited activities, for both financial and environmental reasons.
“Texas has become a major transportation hub because one of the most important factors [pour une exploitation minière réussie] is the low cost of energy. My company decided to use 100% renewable energy and found that hydropower is extremely economical,” Myers says.
Other states such as Wyoming are eyeing crypto, which has just paved the way for virtual currency. He passed a first-of-its-kind bill that would allow the state to accept tax payments in the form of digital currencies. Arizona wants to follow suit.
According to El Mostafa Belhayate, financial expert and chief strategist at Springbox AI FinTech in Dubai, the digital asset universe offers “tremendous potential for all countries.”
When asked by MAP about the future of cryptocurrencies, he stated that “nothing can stop the development of cryptocurrencies.” Like the authorities of a large number of countries, the US Treasury Secretary nevertheless insists that “the regulatory framework must be developed to support responsible innovation while controlling risks – in particular those that can disrupt the financial system and the economy” in general.
In this sense, the International Monetary Fund is calling for “overarching international standards” that take into account the risks to the financial system of crypto assets, their associated ecosystem, and associated transactions, while creating a favorable environment for the useful products and applications of these assets.
“Global regulation of cryptocurrencies must be comprehensive, consistent and coordinated,” recommends the Bretton Woods Institute.