Adoption and Regulation of Crypto

The overall market feels like it’s coming to a crunch time. Governments around the world are starting to seriously consider how to regulate and control the crypto sphere.  This post summarises what’s about to unfold in some detail.

To be clear, this is not a ‘ban’ but enforcement of regulatory standards which some nations may take harsher stances than others. “Some good news is that what makes crypto, crypto, remains unregulated; peer-to-peer transactions themselves, small transactions and ecommerce, open source development, and cold storage will remain lawful.”

One Reddit user’s comment on the bottom of the page was fantastic.

Hard to swallow pills for speculators in comfortable liberal democracies: Bitcoin was never meant to be compatible with the legacy finance system. These regulations are but the machinations of the very system Bitcoin seeks to disrupt. The unfortunate correlate is that the legacy system will fail in a non-subtle way before Bitcoin is accepted as the rational choice. This would indicate the process will be anything but smooth, especially in terms of market price discovery. If you believe in the legacy system’s sustainability in the long term, you probably shouldn’t speculate on Bitcoin. If you see this reaction as inevitable and predicted by the game theory built into the Bitcoin protocol, your conviction has probably increased.

I can’t be certain how much lower prices of crypto will drop under a coordinated regulatory attack and how UK in particular will move. Barclays has already blocked credit and debit card payment into Binance. Binance also stopped allowing SEPA transfers for EU users and iDEAL payment was cancelled a month ago. Meanwhile, in the US, big banks like BNY Mellon are rushing to provide crypto services and Visa have just announced partnership with 50 platforms to spend crypto at 70 million merchants. So I think it’ll differ greatly from one location to another.

Where are we on the adoption curve?

Comparison with global internet adoption

With El Salvador making Bitcoin legal tender though, and Paraguay, Panama, Mexico, Tonga, Nigeria and many others beginning to move towards it, I am keeping a close eye on the progress to see how it will work. I’m still sceptical of Bitcoin as a form of day to day transaction and I’d need to see concrete working examples on a national scale before I feel bullish about it. 


However, the 30% immediate gains from cutting out the middleman in remittance, plus the long term appreciation of Bitcoin as capital could have a significant positive influence on the economic wellbeing of these smaller first-mover nations. If we start to see a domino effect with 20, 30, 40 smaller nations making Bitcoin legal tender, IMF and the World Bank will have little power in sanctioning and containing the rise of crypto as the next global monetary system. 

President Nayib Bukele announcing $30 Bitcoin air drops on all citizens of El Salvador


Argentina, for example, has just submitted a bill to allow workers to get paid in Bitcoin. 

“The idea is that they can strengthen their autonomy and conserve the purchasing power of their remuneration.”

José Luis Ramón, National Deputy for the Mendoza province,


I see more potential in Cardano’s initiatives in Ethiopia, but for the implementation of their system to spread globally, we may need to wait a few more years. I know Charles Hoskinson, the CEO of Cardano, is meeting up with the president of El Salvador to discuss this matter so we could potentially see some large scale projects start to unfold in the next year or so. Cardano is built for national scale implementation: secure digital identity, election voting systems, millions of transactions per second after Hydra implementation, dapps being funded and developed for the local benefit etc etc. so keep an eye out. Check out their Africa Initiative here.

Charles Hoskinson signing a contract with the Ministry of Science and Technology of Ethiopia

Tether and stablecoin risks

There are alarm bells going off on the risks of USDT in particular. Tether’s peg to the US dollar is being questioned with only 2.9% held in cash while the vast majority is in commercial papers. I don’t get an immediate sense that a run on Tether and a crash in its value is happening soon but it depends on what the regulators will do in the next few months. If you do hold a significant amount in USDT, switching it to USDC, DAI and other stablecoins might be worth doing just in case. 


An update from Coin Bureau https://www.youtube.com/watch?v=Q3tunUaDwN0

Instagram and NFT

Instagram will start providing Non Fungible Tokens as ‘collectables’. For those that are unfamiliar, NFTs use crypto’s ability to create digital contents that have built-in contracts and limitations. They can be programmed to pay the author/artist/musician a cut of the transaction directly everytime it changes hands, and be cryptographically secure from copying and replication, essentially solving the problem of digital copyright in the online space.

 “We have additional options when it comes to affiliate marketing and merchandising. The next step is for users to directly pay authors, whether through gated material, subscriptions, tips, badges, or other user-paying goods.

Adam Mosseri, CEO of Instagram


After the initial bubble like hype earlier this year, NFT’s have calmed down a little but as a technological solution, I am 100% certain that this will continue to grow and become the standard in the next few years.

Conclusion

So we are likely going to see some volatility and FUD (Fear Uncertainty and Doubt) in the coming months. Tighter regulatory enforcement will be on the news more often. Many banks will stop transfers to exchanges. Certain countries will ‘ban’ crypto yet again. Big players in the know will short it beforehand and pick up cheaper Bitcoin. We could see prices plummet further and remain stagnant for the rest of 2021.  


But, we are riding the wave of a highly disruptive technological revolution. There will be dips and there will be highs, as with all waves, but the direction of the current is clear. Cryptographically secure, decentralised asset class designed and built to be resistant against central control will prevail. The algorithmically programmed hard cap on supply in the age of hyperinflationary fiat gives me enough confidence. Global recognition and branding of crypto are now at a tipping point where it’s hard to see it dissipate even under coordinated regulatory attacks by central banks and policymakers.


Keep calm and hodle on!

Logarithmic Regression
Log x log on the time line

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s