The week in crypto. Look out, governments are coming!
It’s been another eventful week in crypto… and we’re following it with interest here at Santiment. Below are some of our insights into recent news about government actions toward cryptocurrency investment and trading.
China: Bitcoin Price Drops Below $4200 Due to Uncertainty
A recent report from Beijing-based financial news site Caixin says the Chinese government is considering banning cryptocurrency exchanges in China — specifically, that Chinese citizens will not be able to buy Bitcoin, Ethereum, and other coins using the Chinese Yuan (and vice versa).
Bitcoin dropped significantly as the news spread. However, it’s not entirely clear whether the report is substantiated. There‘s only one news report about the development, but nevertheless, it looks as though Chinese investors are trying to exit the market as quickly as possible, to avoid the chance they get locked out of cashing out to Yuan.
This uncertainty builds on earlier news that China has banned initiating and trading all ICOs, presumably until regulation is passed. And uncertainty stirs with the United States as well, as the SEC has still not made a firm decision on how to treat ICOs and cryptocurrency in terms of securities. They did, however, issue official warnings about the risk of investing in ICOs. Whether or not that will lead to any action by the SEC is still unknown.
Santiment insight: Moves toward regulating the crypto space are here to stay. Governments won’t stop… their regulation frameworks will only increase over time. Short- and mid-term this might mean a decline in crypto prices overall. Long-term, however, this dynamic is bliss for institutional investors. They are literally waiting for regulations. They love and embrace them.
Russia: Looking to Regulate Cryptocurrency
According to Reuters, Russia’s finance ministry is looking to regulate cryptocurrencies involved with Russian citizens and firms. Initially, Russia treated cryptocurrency as illegal, but the government has slowly changed its mind and now appears to fully accept cryptocurrency markets. Russia’s finance minister stated “There is no sense in banning them, there is a need to regulate them.” Russia is currently working on a law that would define the procedure for buying cryptocurrencies. Plus, Vitalik Buterin (founder of Ethereum) has struck a deal with Russia’s state owned bank to develop Ethereum Russia.
Santiment insight: The main reason why Russia “officially” supports Ethereum is a classic example of mass psychology. Whenever governments are involved, they are literally buying the tops (what we see at the moment) or selling the bottoms (crypto was illegal all the way up). This behavior (buy the top, sell/ignore the bottom) is typical and we’ve seen it with Gold, USD, and EUR before. It is FOMO on the government level, so to say.
Also important to mention: Russia has a track record of extreme centralization for the last 600 years at least. It has unsolvable internal political conflicts of interest that will make it difficult to really embrace the blockchain. I could imagine blockchain working in Switzerland — but sorry, not in Russia, unless we wake up and the old Russia is gone and we suddenly have a new, more-or-less decentralized one.
The second best track record in Russia is one of the total corruption. Whatever money will be allocated to this initiative will likely be stolen, used for nontransparent reasons, or disappear in some other way.
We do like the wide adoption of Ethereum around the world. But let’s stay realistic and “see through the noise” into a bit more objective reality.
US: Possible Tax Exemption for Bitcoin Purchases Less than $600
United States Representatives David Schweikert and Jared Polis are introducing a bill called the Cryptocurrency Tax Fairness Act. This act would allow a tax exemption on all Bitcoin purchases less than $600 — an encouraging move that could envigorate the crypto space in the US, where securities laws have so far thrown up barriers to participation.
Santiment insight: We see this as competition on the government level. It’s nice to see the US welcoming crypto too (though in a completely different manner than Russia). Competition is always good. Let’s wait and see if the Chinese government gives something sweet to crypto too (in a maximum few weeks).
EU: ECB Shoots Down Possibility of Estcoin
It was reported last week that Estonia was interested in issuing “estcoins” to allow people to invest in the country (or its digital services). However, the president of the European Central Bank (ECB) rejected the idea that Estonia could issue its own cryptocurrency. When asked during a press conference, ECB president Mario Draghi said “No member state [of the Eurozone] can introduce its own currency; the currency of the Eurozone is the Euro”.
Santiment insight: Not really an insight, just the observation. By simply suggesting this idea, Estonia has become the de-facto StartUp on the government level. “Fail fast, learn faster”. We don’t think this is the end… it will be interesting to see what the next iteration of “invest in government/national interests” will bring to the table.
The bottom line
“Regulatory winter” has been long-awaited among crypto professionals. Has it come? Not yet. Will it come? Very likely. Is it bad? Not at all. The “Wild West” has been good for gunslingers and coffin sellers. For really big money and wide cryptocurrency adoption, a more regulated space is needed.
