Building Wealth Doc's note: Countries around the world are introducing new regulations for cryptocurrencies, with some countries completely banning companies in the industry. But that doesn't mean the end of cryptocurrencies.
Today, our in-house crypto expert Eric Wade explains why the U.S. will realize it can't regulate cryptos...
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Crypto regulation is coming...
Over the past year, China has banned crypto-mining operations and ordered big banks not to do business with crypto companies. The Federal Financial Supervisory Authority in Germany, known as "BaFin," announced it will be regulating alternative investment funds that want to invest in digital assets like cryptocurrencies. And South Korea's Ministry of Strategy and Finance is launching tax rules and regulations for crypto transactions, which already caused around 40 crypto exchanges to suspend services in September.
That's on top of the U.K. Financial Conduct Authority recently banning major exchange Binance from operating in the U.K.
All of this regulation might sound like a death blow to cryptocurrencies... But it's actually a good thing.
Let me explain...
Multiple countries, including Nigeria, India, Ireland, Thailand, and the U.S., have all recently made headlines by offering their thoughts on crypto regulation.
For starters, Swedish Minister for Financial Markets Åsa Lindhagen expressed the need for cross-border coordination in regulatory efforts. These comments come as Sweden continues the development of its own central bank digital currency called e-krona.
The European Union has set 2024 as its goal for a "comprehensive framework enabling the uptake of distributed ledger technology and crypto assets in the financial sector."
India's central bank also released a statement walking back warnings from local private banks that cautioned their users against the purchase and use of cryptocurrencies. These cautionary messages cited an outdated three-year-old ban regarding crypto trading, which India's Supreme Court overturned in March 2020.
These actions come amidst rumors of a blanket ban by the Indian government, which may or may not have any real weight behind it.
And Nigeria recently reversed its previous bitcoin ban, which most of the country seemed to turn a blind eye to anyway. Around 32% of Nigerians reportedly use crypto, compared with 13% of Americans. Many thought a reversal of Nigeria's ban was inevitable.
Meanwhile, financial regulators in the U.S. are raising concerns over the volatility of cryptocurrencies and the increasing need for a clear regulatory framework.
That's why the U.S. House Committee on Financial Services has created a digital-assets working group. This group plans to look into how to approach digital assets, digital currencies, blockchains, and cryptocurrencies in the U.S.
You see, one of the problems we've had in the U.S. is whether cryptocurrencies can be labeled as property, assets, or currencies. This affects taxable income and capital gains.
Now, I don't expect this group to come up with any definitive answers on how to regulate cryptocurrencies. But I do think it's creating a learning path. I imagine the group is bringing in all kinds of intelligent advisers... and they're going to have a conversation where someone says, "So you're telling me no one's in charge? Then doesn't that mean we have an opportunity to be in charge and sort out some of these rules?"
I've said this before... the U.S. can't regulate cryptocurrencies. The U.S. can only regulate Americans. So the next step would be for someone to say, "You can't regulate and control purely decentralized cryptocurrencies like bitcoin."
The U.S. Securities and Exchange Commission ("SEC") has already said it doesn't consider bitcoin a security because it's decentralized. There isn't a controlling body issuing new stock... so the SEC doesn't concern itself with bitcoin. But there are other coins and tokens that we can expect to be treated very differently if they do appear to have characteristics of securities.
Hopefully, the U.S. House Committee on Financial Services will realize it can't be in charge of some coins because of certain characteristics. If it doesn't realize that and it attempts to control decentralized coins like bitcoin, then it will figure out at some point that bitcoin and decentralization are bigger than the committee.
That's a bold statement, I know. But think about it...
Bitcoin is global... it isn't controlled by the jurisdiction of any particular country... and the nodes and mining equipment that keep the bitcoin network running are located all around the world. This equipment can move away from unfavorable countries, which we've seen happen for months as crypto miners leave China. If China can't stop bitcoin, it makes sense that no one can.
Now, there are crypto organizations that aren't entirely decentralized. For example, Binance, the largest crypto exchange by volume, has had to relocate many times due to regulatory clampdowns. That's why it's important for projects to look for crypto-friendly jurisdictions like the Cayman Islands, Singapore, or others.
In short, the U.S. House Committee on Financial Services has some room to regulate crypto projects that aren't entirely decentralized. But for purely decentralized coins like bitcoin?
Good luck.
It's impossible for any government to shut down truly decentralized cryptocurrencies, because there is no single point of weakness to attack. And in the meantime, the increasing regulation of cryptos shows that they're gaining recognition worldwide.
As more and more people recognize cryptos as a legitimate asset class, so much capital will flow into the space that picking winners will be like shooting fish in a barrel.
Good investing,
Eric Wade
Editor's note: Recently, Eric has found six other coins that he believes have much more upside potential than the most well-known name in cryptos – bitcoin. And this Wednesday, November 17, Eric will give away the name of one of these coins... for free. He'll also detail a critical event happening in January that will give you a rare chance to profit in cryptos.
This is a can't-miss event. Sign up here today.