German Government States Cryptocurrencies Do Not Pose Threat to Financial Stability, Still Need Regulation
The German Federal Government has stated officially that cryptocurrencies as they currently stand do not threaten financial stability. Despite this optimistic outlook, the government further clarified that regulation should be implemented in some form and should evolve along with the rapidly evolving landscape of crypto itself. This German stance on regulation is becoming increasingly common among world superpowers.
The main bullet point Germany cites with regard to financial stability is sheer volume; the amount of crypto asset transactions is still too low relative to the size of traditional financial activity (Visa settles about 24,000 transactions per second while Bitcoin can handle fewer than ten). Their stance was further bolstered given cryptocurrencies’ “limited interlinkages with the financial sector,” a truth that may not hold up forever given recent investor demand for crypto-derivatives and blockchain pilots popping up at major banks around the world.
Germany was quick to pivot off their favorable sentiment to emphasize what they view as the seedy underbelly of crypto: the potential for privacy-centric cryptocurrency to play a role in money laundering and terrorist financing. Germany hedged this assertion with a caveat that they cannot accurately estimate the extent to which this happens. As reported on this blog, a recent report out of Hong Kong found cryptocurrency does not play a material role in those nefarious acts. As reported by CoinDesk, Germany will commission its own report to be completed next year:
In order to address the risks of Bitcoin and other “cryptocurrencies”, there are already important regulations in Germany: for example, German-based crypto traders must follow the same anti-money laundering regulations as other financial service providers — especially when it comes to identifying customers.
The news should be viewed in tandem with those crypto policies Germany has already implemented. A license is required from BaFin, the Germany Financial Supervisory Authority, for any cryptocurrency trading platform within the country to commence operations. BaFin has also gone on record to warn citizens about initial coin offerings and the risks thereof. One common theme between Germany’s stance and that of other G20 countries is how they note the “global tradability” of these offers and cryptocurrency generally. It is difficult for any single country to instantiate and subsequently enforce regulation when cryptocurrency trades as a global, around-the-clock market. A coordinated effort of superpowers would be more effective in a perfect world, but such joint committees can be difficult to organize and run.
For now, Germany’s opinion carries a certain heft. And although these recent statements are somewhat vague around what specifically constitutes “financial stability” or “regulation,” they still send a signal that while cryptocurrency may not be on the brink of turning the world as we know it upside down, it still warrants scrutiny.
Disclosure: This post, as with all Crypto Economist branded posts, is a personal opinion written for informational purposes only. This post does not constitute investment advice, legal advice, tax advice, or any other sort of advice. Likewise, the information herein should not be interpreted as any endorsement, recommendation, or sponsorship of any particular company, token, or security.