Regulators should help, not hinder, the rise of virtual currencies
The news that the G20, the grouping of leading economies of the world, has decided to start monitoring virtual currencies has put some cryptocurrency enthusiasts in a spin.
by Antoni Trenchev, Nexo
The Financial Stability Board, led by Bank of England governor Mark Carney, which makes recommendations to the G20, announced this week (Mon July 16) that it has put forward a framework for monitoring cryptocurrency assets. It has presented a list of metrics that the board says “should help to identify and mitigate risks to consumer and investor protection, market integrity, and potentially to financial stability”.
The monitoring efforts will focus on crypto assets’ price volatility, the size and growth of initial coin offerings (ICOs), crypto’s wider use in payments and institutional exposure, as well as the market’s volatility when compared to gold, currencies and equities.
While crypto-anarchists baulk at any interference from traditional regulators or authorities, virtual currencies need wider understanding and hopefully, acceptance, if they are to emerge from the shadows. This is true of any new technology. Growth accelerates when they become mainstream, rather than, as crypto currencies are now, the occasional butt of bankers’ jokes.
And the fact remains that there have been Initial Coin Offerings (ICOs) that have not delivered on their promises, creating neither a realistic product nor value for investors. It is heartening that the G20 has not been advised to crack down on blockchain currencies, commenting instead “that crypto-assets do not pose a material risk to global financial stability at this time it recognizes the need for vigilant monitoring in light of the speed of market developments.”
While many tokens are worthless, there are a few that have gained currency among investors. Bitcoin and Ethereum are the best-known tokens and are becoming recognised as currencies in their own right.
A new generation of fintech companies are bridging the gap between the crypto world and the financial system. These companies are bringing the benefits of blockchain to a more traditional world. An acceptance of the technology, greater liquidity, and an embrace of the opportunities will benefit both virtual and fiat currency holders.
These hybrid companies typically issue another class of token, known as security tokens, and these are increasingly viewed like stocks and shares. Many believe that these security tokens, rather than the blockchain currencies, will become the conduit for Wall Street capital to enter the digital token space.
For this to happen, investors need more clarity from regulators and the G20 move is a positive first step in this direction. Some countries have gone even further.
South Korea and Thailand are at the forefront in becoming safe havens for digital assets. Thailand has approved seven digital coins to trade in the local market, while South Korea is developing a local banking regulation model.
Cryptocurrency and blockchain — two words never heard by central bankers less than five years ago — are becoming mainstream, heard even in the corridors of the Bank of England.
Greater liquidity and transparency will greatly reduce the risk associated with digital currencies. It will also be a boon for the major players. The G20’s introduction of a monitoring framework is an important first step towards public confidence in the trade of security tokens.
Antoni Trenchev is a founder and managing partner of Nexo, the first instant crypto-backed lender