How Regulations Will Change The Crypto [Digital Asset] Market
There is a lot of talk about new regulations impacting the crypto world, some positive and some not, and if you put three crypto people in a room, you’d get five different opinions about what is going to happen in the world!
If you are involved in this crypto space, this is an important subject. My views were formed in 2017 and have not changed.
Here they are:
1. Regulations confirming the crypto industry will be implemented in 2019/20 in all credible countries because they are sorely needed. This will dramatically impact everyone involved and will continue the consolidation of the industry. Crypto will be regulated based on their use case classification. Currencies like currencies. Securities like securities.
2. The biggest challenge will be the ‘token’ business. Tokens will split into three areas — blockchain tokens, community/fan tokens and security tokens.
— Securities are easy — securities laws will apply, except for crowd-funding. (See point 4.)
— Community, fan and blockchain tokens have a simple decision — do they have a credible intrinsic value or are they just a front for raising capital? If it’s raising capital, then they are a security (see above).
I think that exchanges should be made responsible for classifying coins and deciding whether the coin has intrinsic value or not. If the exchange mis-classifies a token, then they risk losing their licence and their business. This is a potential nightmare for exchanges but from a government’s point of view, it’s the smartest form of control. Make the exchange the gatekeepers.
3. Privacy currencies like Monero and Zcash are used for hiding money, running totally in conflict with anti-money laundering legislation, so any licensed exchange will be banned from holding them.
4. The last area is crowd-funding for securities tokens. If a token is used for the early stage funding of companies, then it falls into the world of crowd-funding. Tokens solve the problem with equity crowd-funding, so have the potential to solve one of the biggest issues in every economy today. There will eventually be two types of crypto-securities — normal and crowd-funded.
Looking at these four points, we see the crypto industry adjusting to fit the current global asset market with a couple of adaptions. I have never believed in the dreams promoted by so many naive pioneers of a ‘new global crypto ecosystem of a decentralised tokenised world outside of the current economy’. The world simply does not work like that if you want the mass market and if you want big valuations.
I see crypto regulations making the crypto industry a ‘national business’, so 99.9% of business is focused nationally. Investors invest in locally licensed exchanges with those exchanges adapting to support either securities, crowd-funding, tokens and/or currencies. The exchange market will split into those for institutional, retail traders and retail investors. For instance :
- A US institutional grade exchange listing large cap securities tokens and currencies would be licensed at securities law level.
- A Japanese crypto exchange may be licensed for crypto-currencies and tokens, but not securities.
- An Australian investment exchange platform might be focused on retail investors and crowd-funding.
- There will be a few ‘global’ exchanges, for those that don’t want their money investigated in their home country, based in tax-free or weakly regulated markets like Malta. Welcome to the Binance model. There are huge amounts of ‘international money’ but the only problem is bringing that money back into a country, as the AML/tax laws will hit anyone trying to hide this transfer.
My last point is about ICOs which is a manic area for regulators, as they see the public speculating on new coin offerings and unregulated offers for mainly international deals. This shows classic ignorance of regulators to new markets. Firstly, a very small percentage of the public get involved in ICOs and secondly, the public ICO market has already died so they are worrying about a dead market! The idea that the government can protect the public from new speculative opportunities is laughable. They have never been able to and they don’t protect the public from wasting cash anyway or they would ban gambling!
I have no doubt that governments will add some stupid regulations regulating ICO promoters which will kill the golden goose of innovation and provide absolutely nothing. Look at what happened in Thailand after they introduced ‘strong ICO regs’ — it killed the very market they were hoping to develop in a controlled way!
The world seems to be rolling out this way. What do you think?